It is common to consider charitable giving as part of one’s estate planning. This topic, however, is often only discussed in the context of planning for one’s death (e.g., with respect to establishing trusts; including charities in one’s will; or designating one or more charities as beneficiaries of a life insurance policy or registered plan). It is rare for an individual to consider their charitable intentions when appointing an attorney for property or discussing, in the establishment of a donor advised fund or private foundation, how to ensure one’s philanthropic intent will be carried out during one’s incapacity as opposed to upon one’s death.

Attorneys for Property and Charitable Gifts

The Substitute Decisions Act, 1992, S.O. 1992, c. 30 (the “SDA”) contemplates charitable giving by an attorney for property. Section 37(3) of the SDA explicitly states that a guardian of property (or an attorney for property if one refers to section 38(1) of the SDA, which makes this section equally applicable to attorneys for property) may make charitable gifts from an incapable person’s property.

The guiding principles relating to charitable gifts are subsequently set out in section 37(4) of the SDA:

(4) The following rules apply to expenditures under subsection (3):

1. They may be made only if the property is and will remain sufficient to satisfy the requirements of subsection (1) [being expenditures supporting the incapable person, supporting his or her dependants, and satisfying his or her other legal obligations].
2. ...
3. Charitable gifts may be made only if,
   1. the incapable person authorized the making of charitable gifts in a power of attorney executed before becoming incapable, or
   2. there is evidence that the person made similar expenditures when capable.
4. If a power of attorney executed by the incapable person before becoming incapable contained instructions with respect to the making of gifts or loans to friends or relatives or the making of charitable gifts, the instructions shall be followed, subject to paragraphs 1, 5 and 6.
5. A gift or loan to a friend or relative or a charitable gift shall not be made if the incapable person expresses a wish to the contrary.
6. The total amount or value of charitable gifts shall not exceed the lesser of,
   1. 20 per cent of the income of the property in the year in which the gifts are made, and
   2. the maximum amount or value of charitable gifts provided for in a power of attorney executed by the incapable person before becoming incapable. 1992, c. 30, s. 37 (4); 2016, c. 23, s. 70 (2, 3).

Subsection 37(5) of the SDA goes on to say that a court may authorize a guardian (or attorney for property) to make a charitable gift that does not comply with paragraph 6 of subsection 37(4) on motion or application to the court.

Where a continuing power of attorney is silent with respect to an attorney’s ability to make charitable gifts, the above-referenced legislation will apply to permit such gifts. However, as a professional, you are well advised to canvas the philanthropic intentions of your estate planning clients to determine whether they want to provide for something specific in their continuing power of attorney for property. For example, where a pledge has been made to a specific charity, it would be beneficial to include reference to such pledge in the person’s continuing power of attorney for property.

Donor Advised Funds

A donor advised fund is a charitable giving vehicle established by one or more individuals in partnership with an organization. The organization handles the administrative side of the fund, while the donor advises how funds are to be distributed.

Where a person who has established a donor advised fund during their lifetime becomes incapable of managing their property, their attorney for property may not have any rights to provide input with respect to how those funds are used during the incapacity of the donor. Estate planning professionals assisting donors with the establishment of these funds should ensure that they are considering the succession of such donor advised fund during incapacity.

Many organizations offering donor advised funds have contemplated a succession policy. For example, a charitable fund agreement establishing a donor advised fund with the Jewish Foundation of Greater Toronto (the “Jewish Foundation”) will provide for the possibility of successor fund advisors to act upon incapacity of the donor appointed directly in the agreement or by indicating that they may be appointed in writing by the donor at any time. If no successor fund advisor is named or available, the Jewish Foundation’s succession policy provides that the Jewish Foundation has discretion to make distributions from the donor advised fund and, in doing so, it will consider:

1. Documented philanthropic interests of the donor(s);
2. Patterns of historical distributions from the donor advised fund based on actual distributions over the five years prior to the incapacitation of the last donor of the fund; and
3. Community needs.

It is important to note that these are all permissive and not mandatory considerations. A failure to name a successor fund advisor as part of planning for your incapacity (or death) may result in the objectives of the donor advised fund being out of the donor’s hands. It is good to know that, even if an individual’s succession planning has failed in this instance, the general philanthropic intent of the donor will live on.

Private Foundations

A private foundation is an independent legal entity set up as either a trust or a corporation for solely charitable purposes [such as donating to “qualified donees” pursuant to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)].

Trust¹

Where an individual is contemplating establishing a private foundation in the form of a trust, succession upon incapacity of the trustees should certainly be discussed when the trust is being established. Most trust deeds will include some sort of succession plan for trustees (whether by including a complement of trustees large enough to lose some members to death or incapacity at the outset; including a list of individuals who step into the role of trustee if a vacancy arises; or by including a mechanism for trustees to be appointed).

If for some reason the trust deed is silent on this matter, we look to section 3(1) of the Trustee Act, R.S.O. 1990, c. T. 23 (the “Trustee Act”), which provides that:

“Where a trustee…is incapable of acting…the person nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust, or if there is no such person, or no such person able and willing to act, the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee, may by writing appoint another person or other persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee…being…incapable.”

This section of the Trustee Act gives the power to appoint replacements to individuals other than the incapable trustee, and it does not permit advance appointments. It is far preferable to contemplate advance succession planning for death and incapacity in the trust agreement itself at the time of the trust’s establishment where the primary contributors to the foundation can determine who can carry on their charitable intent when they can no longer act in the role of trustee.

Corporations

Where an individual is contemplating establishing a private foundation in the form of a corporation, we look to the by-laws of that corporation to determine whether any succession planning for incapacity of the members and/or directors has been put in place. Again, this is something that should be discussed at the outset and it should be considered whether the attorney for property of an incapable member can step into his or her shoes as a director of the corporation (if the by-laws so permit) or whether there is a requirement that all directors be members and a limitation in terms of membership would restrict an attorney for property’s ability to control the corporation on the incapable member’s behalf.

It is important to note that section 23(1) of the Not-For-Profit Corporations Act, 2010, S.O. 2010, c. 15 states that the following individuals are disqualified from acting as directors of a corporation:

"...

3. A person who has been found under the Substitute Decisions Act, 1992 or under the Mental Health Act to be incapable of managing property.
4. A person who has been found to be incapable by any court in Canada or elsewhere."

A similar statement appears at section 126(1) of the Canada Not-For-Profit Corporations Act, S.C. 2009, c. 23.

Takeaways

If charitable giving is important to you or your clients, it is essential that consideration be given not only to how it will be achieved upon death but also during a period of incapacity. Whether a charitable giving vehicle (such as a donor advised fund or private foundation) has already been established, is in the process of being established, or even if no such vehicle is being used but direct personal giving is a high priority, putting in place the right substitute decision maker(s) or successor(s) for charitable giving is essential.

Your clients should think about whether the individuals being named in a continuing power of attorney for property believe in the same causes that they do (or would at least support those causes at the direction of your client without oversight). Some clients should consider bringing their children into the fold as advisors of a donor advised fund or as trustees or directors of a private foundation to encourage philanthropic values and create a lasting legacy across several generations. Estate planning professionals are advised to remind their clients that the most important thing they can do is to consider the worst-case scenario, even while doing the most positive act—giving.

¹ The same considerations outlined in this section apply to other charitable trusts, such as charitable remainder trusts.

About the Author

Kathryn Balter assists her clients with respect to wills, trusts, the transfer of assets, charitable giving, powers of attorney, and estate administration. She works in partnership with her clients to help them navigate complex matters and to protect and plan for the transfer of their personal assets.

Kathryn is active in the estates and trusts bar and is the incoming vice-chair of the Ontario Bar Association (OBA) Executive for Trusts and Estates Law. While on the Executive Committee for the OBA Trusts and Estates Law section, Kathryn spearheaded the “Make a Will Month” initiative that has provided hundreds of public information sessions across Ontario, partnering with the Toronto Public Library, and actively participated in the development of emergency legislation to address the COVID-19 pandemic in Ontario relating to the execution of wills and powers of attorney.

Kathryn is also a member of the Society of Trusts and Estates Practitioners (STEP). Kathryn has contributed to several publications and has spoken at various professional and public programs on the topic of wills, estates, and substitute decision making.