All About Estates

“To give or not to Give?” is only the first part of the question – as important is “How”?

Charitable giving is often an important goal of a client’s planning.  As the title of this blog suggests, there are many ways to achieve this objective. What follows is a general overview of on of the options available for charitable giving- namely the establishment of a private foundation- and addresses some of the practical implications of same.

Purposes and Categories

A private foundation usually operates as a funder, i.e., it is established and operated for the sole purpose of making distributions to Canadian registered charities or other qualified donees. There are certain cases where a private foundation is a doer, i.e., it directly carries on charitable activities instead of or in addition to funding other registered charities’ activities. These functions are not mutually exclusive, and it is also possible for a private foundation to function in both arenas and be both a funder and a doer.

The charitable purposes of a registered charity, especially a doer, must fit within at least one of the following four heads of charity:

a) advancement of education;

b) advancement of religion;

c) relief of poverty; and

d) other purposes beneficial to the community – promotion of health and protection of the environment are two of many examples of categories covered under this heading.

The charitable purposes described in the articles of incorporation will inform and guide the types of activities that can be carried on or the charities that can be supported. In other words, the stipulated charitable purposes will define the limits of the foundation’s activities.

Within these overall purposes, there are a few possible options to choose from, each being some variation of a funder, a doer or a combination of same.

A general funder is the most straight forward option with minimal customization. The sole stated charitable purpose of a general funder is one that has been pre-approved by CRA and is as follows:

To receive and maintain a fund or funds and to apply all or part of the principal and income therefrom, from time to time, to qualified donees as defined in subsection 149.1(1) of the Income Tax Act (Canada).

A customized funder uses a version of the above statement of purpose where the charity may only make distributions to other registered charities that fit the description set out in its statement of charitable purpose.

A general or customized funder and doer is a charity that may fund other registered charities – generally or specifically- and also carry on activities. For example, the foundation may wish to advance education in a specific field of studies by establishing a scholarship or a research fund in support thereof where individual applicants may apply to the charity for funding.  Advancement of education would be the charitable purpose.  Review and approval (or rejection) of applications and granting of funds would be the activity in furtherance of that purposes.  This could be in addition to simply making distributions or grants to other Canadian registered charities.

A doer is a charity that may only carry on activities without the option of making distributions or grants to other Canadian registered charities. To use the previous example, one may decide to focus on the activity of granting scholarships or funding research. While this is possible, it may be too limiting. A Canadian registered charity is required to spend a fixed amount of its income each year. In the event of shortage of qualified applicants in a given year, the charity may fail to meet said spending requirements.

Of the forgoing options, applying for a funder status, be it general or customized, is the quickest and most straightforward process. Any application with a doer component is a more involved one, wherein the applicant must articulate their charitable purposes in a detailed manner as well as provide a detailed statement of activity in support of each charitable purpose. The complexity of the application will depend on the nature of the proposed purposes and activities.

Governance Structure

Once the decision has been made to establish a private foundation, a determination as to how it will be governed is key. Similar to the purposes, governance of a private foundation can be customized to achieve certain control objectives.  For example, in the event the one wishes to exercise maximum control, it is possible to put in place a governance structure that provides the founder sole control of the foundation during his or her lifetime and then passes on control to the executor(s) of the estate on death.   One can also build in a “sunset” provision that will provide for the ultimate winding up and end to the foundation at some defined future point in time.

It is also possible to provide for the involvement of family members is the operation of the foundation, fostering charitable objectives across generations.

Closing Thoughts

Charitable endeavours are admirable, and the establishment of a private foundation can be a way to facilitate them.  Subject to compliance with the overall requirement to have charitable purposes, there are many ways to answer the “How?” question.

About Maureen Berry
Maureen Berry is a partner in the Trusts, Wills, Estates and Charities group at Fasken. Maureen’s practice is focused on wills, estate planning, domestic and international trusts, private corporation taxation, and executive compensation. Maureen also advises charities and non-profit organizations. Working with Canadian and international families, firms, corporations and charitable organizations, she provides advice on all aspects of private client matters. She is a leading expert in the fields of tax law and estate planning. As an Adjunct Professor at Osgoode Hall Law School, she teaches Advanced Estate Planning. Maureen has previously taught corporate tax and international tax at the University of Toronto and Western University, along with the Bar Admission course for up-and-coming lawyers.

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