When a wealthy divorced Montreal man died recently, his three children learned they’d only be sharing half of his estate. His offspring, all adults and living outside Canada, were taken aback by the news.
Why make such a gesture in his last formal communication with his heirs? Was he sending a message about their lifestyle choices?
“Good rational questions that only have complex human answers,” demurs the teller of this story, Malcolm Burrows, who heads philanthropic advisory services for Scotia Private Capital. In this case, Burrows adds, the will reading contained a second revelation: the man bequeathed half his fortune to a charitable foundation.
In recent years, many charities have benefited from a growing interest in private philanthropy, and not just from the rich, observes CA Jason Rideout, a partner at Archambault, Neathnay & Rideout in St. Stephen, New Brunswick. Tax code changes during the late 1990s allow donation of share capital. That’s greased the wheels.
For some would-be heirs, a client’s desire to give to charity may look like a zero-sum game. And in a few instances, gifts can represent a bit of payback, says Burrows. “Occasionally, charities are used as a revenge position. But in 25 years [in the philanthropic sector], I can count those on one hand.”
Regardless of motivation, though, it’s an advisor’s job to ensure there aren’t any legal challenges when aging clients declare intent to make substantial charitable donations as part of their wills.
It remains difficult to disinherit family members, and recent wills legislation in British Columbia guarantees children and spouses a portion of an estate. Further, wills can be challenged if family members can show testators were incapacitated when they drafted the documents, or were unduly influenced by third parties.
Removing the element of surprise can also make large charitable bequests more successful. “Advising the family of charitable gifts,” observes Corina Weigl, a partner in the estate planning group at Fasken Martineau in Toronto, “goes a long way in ensuring there won’t be any challenge.”
Document everything meticulously
When an older client revises her will to include a large donation to charity, possibly at the expense of family members, carefully document the shift in intention. The new will language isn’t necessarily sufficient.
Burrows advises assembling a dossier that includes correspondence with the charity, and even a biography of the client that outlines her goals for the bequest in non-legal language. These documents should be shared with family members and the charity itself, as they serve to further disseminate evidence of the person’s intent. Further, Rideout urges clients who want to donate signi-ficant amounts to charity to use specific dollar amounts in their estate documents rather than percentages, which can be moving targets.
Many private wealth advisors also convene family meetings so the person can outline her desire to make a big gift in the presence of witnesses, including an estate lawyer. Weigl points out such sessions aren’t meant to be negotiations. “I tell my clients, ‘You have to be strong.’ They have to be able to withstand pressure to do something different.”
Susan Fulford, an investment advisor at TD Wealth, says if you anticipate a challenge to a gift, it’s useful to have a lawyer draft a letter of intent to set up the donation, and then ask the next generation sign it to acknowledge that they’re aware of the planned gift.
If she’s proposing her client establish a philanthropic vehicle, such as a donor-advised fund, that client should formally invite family members to participate in making decisions about how those monies will be allocated.
Even if they decline, the formal invitation to participate “diminishes that ability to argue the gift later on. They can’t come back and say, ‘I didn’t know about it.’ ”
Vetting the charity…and the client
While it’s important to accept a client’s wishes and smooth things over with the family, what’s an advisor to do if an announcement of a bequeathal raises red flags?
Scam artists love the elderly, who tend to be sentimental, and preoccupied by the notion of legacy. As such, the elderly often find themselves on the receiving end of high-pressure sales pitches, and some change their wills to make a significant donation to a dodgy charity.