Are will challenges easier when there are charitable beneficiaries?  Moreover, if there are more charities named in the will does that heighten the likelihood of legal contest?

This is the kind of “shop talk” that happens when charitable gift planners get together with trust professionals and lawyers.  One lawyer told a cautionary tale of a large estate that was litigated away from a dozen named charities.  The charities lacked the will and coordination to uphold the testator’s clear charitable intent.  The underlying assumption that drove the litigation is that charities are second-class estate beneficiaries.

Not Second-Class Beneficiaries

Casting charities as undeserving estate beneficiaries that “should be grateful” is nothing new.  Within the limits of family law, most Canadian provinces support testamentary freedom, or the right of a person to give away their property to whomever they wish.  In addition to societal bias about the legitimacy of charities as estate beneficiaries, charities face a tactical and legal disadvantages when confronted with litigious claimants.  Charities are hampered by lack of resources, fear of appearing aggressive, and failure to coordinate.

Fear and Lack of Resources

Here are some of the challenges for charities.

1. Resources.  Only the top one or two percent of Canada’s 86,000 registered charities have sufficient resources to manage bequest administration in-house or consistently consult with legal counsel.  It’s not just a lack of funds.  Although there a few large charities with capacity and professional staff, the majority of charities are volunteer run and staffed. Expert staff and clear processes are at a premium among charities.

2. Timidity. Charities may fear negative publicity arising from the defense of an estate donation.  Will the action harm public trust or dampen the generosity of other donors?  I don’t believe so.  While there a couple of large charities that have a reputation for being assertive about fees or administrative issues, I don’t know of any Canadian charity that has loss donations over the long-term due to acting on good legal advice in an estate matter.

3. Coordination. Charities named in a will often work together to defend their mutual interests.  It is not unusual for the coordination effort to be lead by the experienced staffer of a large charity.  A flock of charities, however, may be meek and difficult to coordinate.  It can be easy for a plaintiff with belligerent legal counsel to divide and conquer.

Possible Solutions

What are possible planning and governance solutions?

• Charity contact and records.  A gift is strengthened if the donor informs a charitable beneficiary of their estate plans.  Gifts by will are primarily challenged on the basis of lack of testamentary capacity or undue influence.  A charity can refute these claims if there is good planning and a detailed record of contact with the donor to capture their intentions.

• Public foundation with donor advised funds.  A donation to a public foundation with donor advised funds can simplify and strengthen the estate plan.  Rather than name individual charities in the will, a donor can name the public foundation and make grant recommendations to support several charities.  The public foundation is more likely to have the resources, expertise and will to protect the charitable interest.  Some foundations provide the ability to make outright grants of capital to charities.

• Charity Capacity.   Charity boards should develop an estate administration and litigation policy to prepare for the inevitable. Consult with legal counsel.