All About Estates

When Private Foundations Die

“Vanitas Still Life” by Pieter Claesz, 1630.

Private foundations are believed to be durable entities.  Perpetuity is assumed.  Canada Revenue Agency (CRA) data shows, however, that 2,319 private foundations closed during the period 2000 to 2021.

Growth in Private Foundations

There are currently 6,213 private foundations registered in Canada.  The private foundation is the fastest growing category of registered charities.  To provide perspective, from 2013 to 2021 there was a net increase in private foundations of 17.4% from a baseline of 5,290. During the same period 999 private foundations closed. Private foundations are being created at an unparalleled rate, but the operating challenges are frequently underestimated.

Revocations by Category

It’s enlightening to review the revocations by category.  Since 2000, 35 private foundations were revoked after an audit by CRA (aka for cause).  Although the CRA database is vague about the actual reasons, they include participation in tax shelters, lapsed incorporation that invalidated the registration as a charity, receipting infractions, and private benefit.  The most common reason is inadequate books and records, which is CRA’s “gotcha” rationale masking another cause.

Since 2020, 784 private foundations were revoked for failure to file the annual charity return (the T3010).  A failure to file may be a) deliberate, which indicates an organizational death wish; or b) inadvertent, which suggests a charitable mission that has faded or become too burdensome to pursue. These foundations may reapply, but most are simply exhausted.

The largest cohort is the 1562 private foundations that filed for voluntary revocation since 2020. While CRA does not provide details, this group has one or more of the following characteristics:

  • directors/trustees fatigue;
  • lack of succession plan and leadership;
  • short-term mission;
  • spenddown mandate;
  • insufficient financial resources.

The high hopes of founders may prove burdensome to future generations of directors/trustees to implement.  The monetary value of the foundation may be inadequate for the purpose, or, simply, there is no administrative support.

Operational Hurdles and Planning Assumptions

There is no shame in a private foundation running its course – all human institutions do.  The most responsible action may be to dissolve a foundation and redirect funds to other charities.  The bones of the 2,319 dead foundations suggest there are considerable operating hurdles.  Estate plans that include private foundations need to consider purpose and operations.  Governance, succession planning, and management are essential for private foundation success.

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

4 Comments

  1. Elena Hoffstein

    May 20, 2021 - 1:13 pm
    Reply

    Hi Malcolm….hope you are keeping well during this challenging time. I agree with everything you say and give the same advice to clients who want to set up private foundations….and try to steer them to institutions such as yours as the better alternative

    Stay positive
    Test negative

    Elena

    • Malcolm Burrows

      May 20, 2021 - 2:39 pm
      Reply

      Hi Elena –

      Thanks for your contribution to the discussion. Private foundations are an important part of the philanthropic landscape – essential funders and partners. My point is we should be humble about the long-term challenges of managing them, and we shouldn’t assume that they will be immortal. Be well, Malcolm

  2. Rowena Griffiths

    May 20, 2021 - 3:01 pm
    Reply

    Food for thought as always Malcolm thank you….I totally concur with Elena, with the growth in the last few years of the use of donor advised funds…for many it is the less complex option to fulfil their philanthropic intentions.

    • Malcolm Burrows

      May 20, 2021 - 3:25 pm
      Reply

      Hi Rowena –
      Thanks for the engagement! I’d also say that individual donor advised funds are, by design, often not perpetual. And that’s a good thing. I hope the foundations that hold donor advised funds are stable and long-term. We need infrastructure in the charitable sector. Hope you are well, Malcolm

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.