Planned Giving - Part 3 - Hull on Estates and Succession Planning #197
Listen to: Planned Giving - Part 3 - Hull on Estate and Succession Planning #197
This week on Hull on Estate and Succession Planning, Ian Hull discusses the importance of charitable giving.
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Planned Giving – Part 3 - Hull on Estates and Succession Planning #197
Welcome to
Ian Hull: Hi and welcome to Hull on Estate and Succession Planning. You’re listening to episode 197 on Tuesday, March 9th, 2010.
Well welcome back. And I’m doing another solo performance. Suzana Popovic-Montag, my co-host, is stuck in Whistler, couldn’t get out of the Olympic Games spirit and couldn’t join us today. No, seriously, she couldn’t be able to add in her comments today. But we’re going to work forward and continue with our charities theme and gifting through charity.
The focus of our last discussion was charitable remainder trusts, which is a huge topic and one which we’re going to break down a little further as we go along in our mini-series. But I thought it would be interesting to step back at this point and say, you know, just what are we doing here, and why are we doing it? Why is this important to me? And why is it important, I think, to others in terms of charitable giving? And what does it mean in Ontario, certainly, and across Canada and the impact of charitable giving in the estate planning field?
And so what I did was I took at look at, and there’s a terrific source for some interesting stats. A national survey of non-profit and volunteer organizations, it’s a Statistics Canada 2004 report, and the details of it will be in our show notes. But it’s entitled the…the full report is entitled “Cornerstones of Community – Highlights of the National Survey of Non-Profit and Volunteer Organizations”. So let’s get a sense of what the scope of charitable giving is really all about, certainly in Canada, and give us some perspective as to its impact, both in the planned giving area and certainly in our Will planning area. For example, in 2003, Ontario’s 45,000 non-profit and charitable organizations reported $48 billion dollars in revenue. Now about $29 billion of that relates to colleges and universities. But we’re talking big dollars, obviously, in terms of the impact within the charitable community and within our economy. And in 2003, the charitable and not-for-profit sector employed, based on this report, 959,000 or 8% of the population of Ontario. Now, 45% of those staff were paid part-time and full-time staff. And the majority, though, were without any staff at all in the organization. So the revenue is really quite interesting. About 7.8 million volunteers contribute almost 800 million hours of their time in these organizations.
Now the typical organizations that we see in the charitable giving side, of course, are religious organizations. And they tend to be the most common part of the charitable and not-for-profit organizations. And according to the statistics, they account for about 23% of all organizations. But they represent interestingly enough only about 6% of the revenues. The hospitals, the colleges and the universities – they represent less than 1% of all of the organizations in terms of the revenues as well. So you can see that the thrust of this is that these statistics illustrate the tremendous impact that both the volunteer hours have and the revenue stream have in the charitable giving side.
So what I thought we would try to do is get…now we have a little bit of context of the importance of it. And I thought it would be interesting, too, to look at the charitable revenue per person statistic that the report talks about because the number of charitable organizations per capita, and these are 2003 numbers, in Manitoba, Saskatchewan and the Territories, was about 0.8% of the total number of charitable organizations. But if you look at Ontario, it’s about double that. And so what we were finding is the revenue stream was heavily weighted into the Ontario stream but that it is actually cross-Canada impact in terms of its position in the marketplace and where it sits in the economic sort of cornerstones.
So now we know it’s important. We know the importance of charitable giving in terms of the economic scheme. What are we doing with that? And we’re going to talk as I say. And I think when we get Suzana back we’re going to really drill down on the charitable remainder trusts and some of the interesting tax concepts. But one of the things that we see in the charitable remainder trust is the whole concept of encroachment. And if we remember we go back to our trust podcast where we talk about the idea of giving something, an asset, to an individual. For example…the examples we were using was to the surviving spouse. So let’s say the surviving spouse gets all of the Estate, all of the income goes the surviving spouse with a power to encroach. In a charitable remainder trust, the power to encroach is a very relevant factor in it because again the same idea is created. A trust is created with the charity being the remainder, the residue in that sense, recipient of the capital but throughout the lifetime the interest income is going to be disbursed amongst family in the charitable remainder trust scenario.
Now what do we do if we have a power to encroach and how does Revenue Canada or CRA as we now know it, deal with that power to encroach? So let’s just step back and remember our first principles on the power to encroach – that is, of course, that one has to look at the specific language within the trust document to determine (a) is there a power to encroach; and (b) to what extent can you encroach. And then once we’ve got a handle on the document terms, what is the case law saying about the power to encroach and how is that going to affect us in the context, certainly, of a charitable remainder trust? But let’s just use it generally. How’s it going to affect us in the context of trust law generally?
So remembering back again, our first principles, the power to encroach will typically have fairly broad language. It may be specific but it is typically broad; whereas it says typically that you may encroach on the capital, get all the income to wherever they’ve decided it to go. For the example I’ve given you is all the income to the surviving spouse with a power to encroach for his or her benefit during his or her lifetime for purposes of maintaining their lifestyle or grand language like that. Now lots of times you’ll see with children trusts that they’ll say for educational purposes as well. So they’ll try to restrict it a bit, define the sources of where capital would come out of. But that again comes back to the language. So we’re looking at the language on the power to encroach and we’re making sure that we fit within it. But let’s use for our example the broad language. So we’ve got a broad language that there is a power to encroach. And we’re going to bring it specifically back to the charitable remainder trust illustration momentarily. But we’ve got the broad language to encroach. And the Courts have said this: that they will not typically step into the executor’s shoes to question that broad language decision unless they have to. Now that’s an easy lawyer’s answer. But the plain English answer to this is…seems to me anyway… is that the exercise of a power to encroach must be done judiciously. And that means reasoned, typically well written out, your reasons for the decision. And thirdly, that it wasn’t made with bad faith in mind. So that you didn’t say to the beneficiary spouse I am not going to encroach because I’m the executor and I don’t like you. And that’s bad faith. And that may be a bad reason by the Court and so the Court may jump in and start to say, well we’re going to question your decision to encroach or your decision not to encroach.
So those three components are there in the analysis of any power to encroach. And the next podcast we’re going to talk a little bit more about the power to encroach and some of it, how it’s tying in.
So thank you again. We miss Suzana for sure this week but we’ll be back hopefully soon with Suzana joining me. And I recommend that you…I mean I hope that you’ll look to our web page. We’ve got a new, exciting web page and we’ll see what happens at our next podcast with regard to the charitable remainder trust. Thanks for your time.
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