Protect your philanthropic interests

When a wealthy, divorced Montreal man died recently, his three children learned they’d be sharing only half 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 from the late 1990s allow donation of share capital. That’s greased the wheels.

For your would-be heirs, your desire to give to charity may look like a zero-sum game. It’s your advisor’s job to ensure there aren’t any legal challenges when you declare intent to make substantial charitable donations as part of your will.

Legislation makes it difficult to disinherit family members, and wills can be challenged if family members can show you were incapacitated when you drafted the documents, or were unduly influenced by third parties.

Removing the element of surprise can 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

If you’re older and revise your 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 an autobiography that outlines your goals for the bequest in non-legal language. These documents should be shared with family members and the charity itself to further disseminate evidence of your intent. Further, Rideout suggests if you want to donate significant amounts to charity, you use specific dollar amounts in your estate documents rather than percentages, which can be moving targets.

With the help of your advisor, convene family meetings so you can outline your 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 to sign it to acknowledge that they’re aware of the planned gift.

Vet the charity

It’s important to ensure you’ve chosen a bona fide charity. Rideout suggests referring to CRA’s complete listing of registered charities on its website. If the organization’s a scam, re-amend your will. (For charities that check out, ask your advisor to determine whether they have the organizational infrastructure to accept large gifts of cash or stock.)

Other forms of giving

Life insurance policies can be used to offset estate tax exposure, as well as to amplify charitable goals without cracking open a will, says Jack Bergmans, a CFP and principal of Bequest Insurance.

Life insurance policies can cover outstanding capital gains tax payable upon death as a means of reducing the survivors’ exposure. But when your policy beneficiary is a charity, you have the opportunity to exercise philanthropic intentions while keeping the estate whole. Bergmans adds this approach avoids probate taxes and keeps bequests private because the insurance policy is not part of the will.

Another approach to tamper-proof your charitable intentions is to establish lifetime gifts, observes Bergmans. Rather than load all the giving into a will, donate the money now and short-circuit charity-related will battles.

And if a trustee with power of attorney takes over your finances, and “there is a history of modest donations, these often continue,” says Burrows. “Big donations under a POA are rare and probably imprudent in most cases, as the primary duty of care is to [you] during life, not to [your] heirs, family or charity. A trust document can provide powers for discretionary charitable donations, but without explicit powers the trustee is not able to make significant gifts.”

If you have promised to give a specified amount for a certain number of years but die before the donation program is complete, the remaining gifts may not be legally binding, says Weigl. So, she says, you should add instructions in the will on how the executors should satisfy outstanding pledges.

Involving the family

Marvi Ricker, vice-president of philanthropic services at BMO Private Banking, says the best defense against family conflict is an approach that directly involves adult children in the planning and execution of their parents’ charitable goals.

This can be informal — as simple as a family discussion about the causes that would merit a contribution. For families that want to establish more active roles for members, charitable corporations are relatively easy to set up. Another option is a trust-based foundation, which requires more legal preparation but is less flexible and less open to changes by future generations.

Ricker says the corporate structure offers more flexibility, and the next generation gains the ability to alter its mission to reflect evolving philanthropic goals. Formal trusts, she adds, are best if you’re elderly and without family.

“When kids find out that their parents want to set up a foundation, they’re generally thrilled and proud of their parents,” she says. “They know they’re going to inherit something. [In such circumstances], I’ve never heard anyone say, ‘I think I should be getting the money.’ ”