All About Estates

Testamentary Charitable Remainder Trusts

Trusts are balancing acts. The balance is especially challenging when there is a mixture of family and charitable beneficiaries that occurs with certain testamentary trusts. The classic scenario is a testamentary charitable remainder trust. A spouse is income and capital beneficiary for life and one or more charities receive the remainder interest.

Normally the trust is drafted to favour the spouse or other family beneficiaries. If there is anything left over it would go to the named charity/ies. This final payment to charity is a distribution from the trust, but not a gift. No tax receipt can be issued. It is tax inefficient, but typically family needs take precedent.

There are two ways to draft the trust to secure some tax savings.

1. Make the life beneficiary eligible to receive income only and the charity/ies capital only. This makes the trust a gift by will and enables a receipt to be issued and claimed on the final T1. The income beneficiary may not have sufficient access to funds, however.

2. Allow encroachment on capital and provide the trustee the discretion to make charitable gifts. These gifts can be claimed against tax liabilities incurred in the trust. The disadvantage is the testator can’t make a binding choice of charities. The work around is for the testator to state a wish about charitable beneficiaries to guide the trustee. A wish is not a guarantee, but it is the rare estate trustee who will ignore it.

About Malcolm Burrows
Malcolm is a philanthropic advisor with over 30 years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. Views are his own.