As charitable giving through wills grows, so do legal pitfalls

As the holidays end and Canadians prepare for a new year, an initiative led by one of the world’s wealthiest men encouraging his peers to bequeath their fortunes to charity has shone a spotlight on a growing trend of charitable giving through estate plans.Hull & Hull LLP associate Nadia Harasymowycz believes billionaire investor Warren Buffett’s campaign, while targeted at the ultra-wealthy, will raise awareness of charitable giving among all income levels. Many people will get on board through their estate plans, she suggests.

“People have an interest in generally helping others,” says Harasymowycz. “If it’s something you’ve been involved with in your lifetime - giving to a charity either with your time or money - then that’s something I think people do contemplate continuing to do after death. One of the only ways you can do that is though charitable gifting through your estate.”

Through the giving pledge, Buffett and Bill Gates are urging American millionaires to announce their intention to give away at least 50 per cent of their wealth upon death. By August, 40 billionaires had signed on.

Malcolm Burrows is head of philanthropic advisory services at Scotia Private Client Group. In that role, he helps plan, set up, and operate foundations for people through the estate planning process with lifetime gifts. He suggests the giving pledge is a harbinger of a wider social trend that has been going on for years.

“There’s no question that there are more of these donations, and they’re larger,” says Burrows. Overall charitable giving, he notes, has risen at almost twice the rate of the general economy over the past 15 years or so.

“Anecdotally, what we’re seeing is significant increases in large gifts during lifetimes as well as estate gifts,” he adds. “So it’s a combination of the two, which is helping drive up, in relative terms, disproportionate growth of this sector.”

While giving has increased steadily, approaches to doing so have also evolved. Donors, for example, are increasingly opting to provide specific direction for the use of their donation.

In the past, a charity would be named in a plan, but a further sub-designation would be left out. That appears to have changed.

“The trend that we see is a much higher level of donor involvement and a corresponding charity sophistication,” Burrows says.

“The whole dialogue between the client and the charity is beginning to change. They have more specific ideas about what they want the money to do.”

There was a time when all that was required for a donation to be carried out through a will was a correct reference to a specifically named charity.

But more recently, gaps have been found in what a donor wishes to do with the money and the mandate of the organization receiving it.

“So there may be restrictions that the donor wishes to place on the gift that the charity may or may not be able to fulfil later on,” says Burrows.

Because of this gap, he recommends lawyers helping write such provisions in an estate plan ensure they fully grasp the client’s wishes and that the charity selected to carry out that desire is able to do so.

“Otherwise, you’re going to end up with intestacies or failed gifts,” he says. “In extreme cases, the gift fails and it goes back into the residue of the estate.”

Complications like this have prompted lawyers like William Innes, counsel with Fraser Milner Casgrain LLP, to make sure donors have gotten what he calls “emotional sign off” from their family regarding the gift.

At the end of the day, if a gift fails, it generally falls to the family to work out where the funds will go. As a result, Innes says it’s important to deal with significant charitable gifts - money that family members may feel entitled to themselves - tactfully.

“In some cases, people want to get a written sort of agreement that they won’t object to this,” says Innes. “I don’t normally recommend that.

I think that as long as you’ve got evidence that the intention has been communicated to the family and that no specific protests have been registered at the time, that normally will be sufficient to protect the gift.”

He says this could help manage the emotional aspects of the situation by helping children and grandchildren understand that they’re not being shunned through the charitable contribution.

As well, while charitable offerings can create an unmistakable legacy, Innes believes it’s important to take a measured approach.

“A fair balance between family considerations and charitable considerations is always a wise approach when looking at major charitable gifts,” he says.

“Too much one way, too much the other can cause the donor and his or her family a lot of grief.”

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