TESTAMENTARY GIFTS AND WILLS

Transcription

1 TESTAMENTARY GIFTS AND WILLS (Instruments of Stewardship) Canadian Council of Christian Charities Conference Building Ministries/Building Community Tuesday September 26, 2006 RICHMOND BRITISH COLUMBIA KEN VOLKENANT De Jager Volkenant & Company

2 De Jager Volkenant & Company Charity & Non-Profit Organization Law Wills and Estates Corporate and Commercial Law Real Estate Development Employment and Human Rights Law Litigation and Mediation Suite 310, London Station, King George Highway Surrey, British Columbia, V3T 2W5 Tel: (604) Fax: (604)

3 INTRODUCTION Why should charities care about Testamentary Gifts and Wills? When typically do people make their Wills? Have you made or reviewed your Will? A Will has been made for you Have you included a gift to charity in your Will? The Do-It-Yourself Phenomenon

4 THE WILL AS AN INSTRUMENT OF STEWARDSHIP Biblical Stewardship Principals Everything Belongs to God We are called to good stewards of the time talent and treasure we have received Part of good stewardship is succession planning We are directed to provide for our own family members

5 THE WILL AS AN INSTRUMENT OF STEWARDSHIP Will is the final act of Stewardship Opportunity to recognize and acknowledge the ultimate ownership of God Determines the ultimate distribution of our accumulated material resources in a God-pleasing manner A lifetime of tithing often cannot equal what a donor can accomplish through a Will

6 WHAT DO WE MEAN BY ESTATE? Definition What you own in your own name alone when you die (includes home, personal effects, money, investments) Assets not included in estates Joint Tenancies Investments and Contracts with designated beneficiaries Assets transferred to Trusts A word on Joint Tenancies Benefits (avoid probate fees, efficiency) Potential Problems (unanticipated events, future dispositions, taxation, creditors, testamentary trusts)

7 SOME DEFINITIONS Testator(rix) - Person who makes the will Personal Representative - Person who steps into the shoes of the deceased (executor, trustee) Probate and Administration - Court validation of Will and the appointment of the personal representative (two forms common form and solemn form )

8 SOME DEFINITIONS Enduring Power of Attorney - An Instrument that appoints another person to conduct transactions on your behalf even if you subsequently lose the mental capacity to manage your own affairs. Representation Agreement - An Instrument that appoints a representative to make health care (and end of life) decisions on your behalf when you do not have the capacity or the ability to make those decisions yourself. Living Will An Instrument that expresses how you wish to be treated, if you become incapacitated by illness, injury, or old age.

9 IMPORTANT TAX ISSUES RELEVANT TO ESTATE PLANS No Estate Tax in Canada Income Tax Deemed dispositions and capital gains RRSPs Other income in year of death

10 IMPORTANT TAX ISSUES RELEVANT TO ESTATE PLANS Tax Deferral and Exemption Opportunities in Estate Planning Testamentary Trusts Spousal Rollovers Farm Rollovers Rollover Trusts (Alter Ego and Joint Spousal Trusts) Estate Freezes Probate Fees Property Transfer Tax Insurance

11 CHARITABLE GIVING BY WILL Gifts to Charities an excellent way to mitigate the negative income tax implications Types of Gifts Cash Share of Residue Specific Capital Gifts Public Securities Land Cultural Property Art Ecologically sensitive land

12 CHARITABLE GIVING BY WILL Charitable Receipting Receipting rules generally apply to gifts made by Will Appraisals for gifts of capital property New anti avoidance deeming provision does not apply for gifts donated within 3 years of the date of acquisition Timing of gift pursuant to Will can affect calculation of receipt

13 RECEIPTING WHERE EXECUTOR GIVEN DISCRETION Specific Amount + List of Charities receipt to deceased if: Executor has discretion as to allocation Executor has taken reasonable action General Discretion to Choose Charity receipt to deceased if: Specific property or amount or percentage of estate Executor required to make donation under the Will Estate able to pay its debts If discretion in the Will is too broadly worded there is a possibility that CRA will only permit a receipt to be issued to the estate

14 IDENTIFICATION OF CHARITY Critical to get the name right!! Include address of charity to assist with identification Differentiate between local charity and umbrella organization Differentiate between operating charity and foundation

15 CY PRÈS If a trust or gift to charity discloses a general charitable intention, it will not fail for uncertainty or impossibility of performance The trust or gift will be applied for other charitable purposes Cy Près that is, as nearly as possible to the original purpose Court application required

16 Sample Will Clauses Specific Bequest - typically used to designate a specific amount of cash or specific item: I give to Name of Charity [the sum of $10,000 / all of my shares in xyz corporation / my coin and stamp collection / my real estate located at...] to be used for the general purposes of the Name of Charity at the discretion of its directors.

17 Sample Will Clauses Residual Bequest - used to designate what is left over in the estate after payment of debts, taxes and other bequests: I give to Name of Charity [all / 50% / 25%] of the rest, residue and remainder of my estate.

18 Sample Will Clauses Contingent Bequest - a bequest which only takes place if a prior condition is met: In the event that my husband predeceases me, I give to Name of Charity the sum of $25,000.

19 Sample Will Clauses Endowment Bequest - a gift of capital (often to a foundation) which is invested for the purpose of generating income to support the work of the charity in perpetuity: I give the rest, residue and remainder of my estate to Name of Charity to establish The [donor chooses name] Endowed Fund to support the general purposes and programmes of Name of Charity.

20 Who can make a Will? Formalities Writing & Clarity Signing & Witnesses Knowledge of contents WILL BASICS Freedom from duress, coercion or undue influence Understanding the extent and value of the Estate Takes effect on death

21 KEY STEWARDSHIP ELEMENTS OF A WELL DRAFTED WILL Guardianship Choice of Personal Representative Wishes regarding distribution of the Estate clearly expressed in Will Trusts Discretionary Trusts Letters of Wishes

22 COMMON PROBLEM AREAS WITH TESTAMENTARY INSTRUMENTS Will too specific regarding description of Assets Out of Sequence Instructions Division of Personal Property Certainty for charitable bequests Beneficiary as a witness Bequests made to Personal Representative Execution, Alterations & Codicils

23 IS A LAWYER REALLY NECESSARY? Careful and clear language Avoids costly mistakes Valuable estate planning advice Proper execution Good value relative to cost Lawyer s have professional responsibilities including client confidentiality Lawyers have liability insurance Notaries

24 CAN A TESTATOR DISINHERIT FAMILY MEMBERS? Yes - but your spouse and children may have recourse through the Courts Wills Variation Act Designed to protect spouses and children. Intended to be based upon need but cases vary Wills or external document should explain rationale for leaving family member out Planning to protect estate from WVA claims and creditors generally Consider family Will planning exercise

25 MANAGING TESTAMENTARY GIFTS Notice of inclusion in Will Obtain complete copy of Will and read carefully in its entirely Determine whether gift is subject to conditions or contingent on the failure of another gift before distribution Ensure that the charity is properly described using full legal name or registered operating name Review terms of any donor restrictions and determine whether charity is willing to comply

26 MANAGING TESTAMENTARY GIFTS Communicate with the executor/trustee or estate solicitor and request regular communication re status of estate and likely time of distribution Diarize dates and follow up with regular correspondence Refrain from signing releases in favour of the executor/trustee until charity is fully satisfied that it is receiving all monies and property that it is entitled to and that the remuneration to the executor/trustee and solicitors is reasonable Resist voluntarily renouncing gifts

27 Reducing Risk Associated with Testamentary Gifts and Estate Planning Programs Liability may attach to charity, its directors and/or to fundraisers Allegations of undue influence in the estate planning process may lead to liability Risks increase if charity provides legal services or assists in the preparation of Wills or Testamentary Instruments Providing advice on Will structuring, tax planning without recommending independent legal advice. Paying professional fees on behalf of donors Flow through liability from gifts in kind

28 Reducing Risk Associated with Testamentary Gifts and Estate Planning Programs Both the charity and donor should use professional advisors Take steps to raise the shield of insurance in relation to estate planning programs Do not retain original wills and codicils Exercise due diligence on gifts in kind

29 Reducing Risk Associated with Testamentary Gifts and Estate Planning Programs Avoid the following in order to minimize risk of allegations of undue influence: Directing legal work to one lawyer who may be, or may appear to be dependent upon referral work form the charity Paying any portion of the legal costs of the donor for will preparation or estate planning Acting as trustee under Will or attorney under Power of Attorney Preparing the Will or providing estate planning advice without the donor obtaining independent legal advice

30 Reducing Risk Associated with Testamentary Gifts and Estate Planning Programs Avoid the following to minimize risk of allegations of undue influence: Recommending how much the estate should give to a charity without the donor obtaining independent legal and tax advice Completing a Will guide on behalf of the donor (rather than the donor completing himself or herself) Meeting with the lawyer and donor when instructions are given for Will Being present when the Will is signed as a witness or observer Offering to store the original documents on behalf of the donor

31 Reducing Risk Associated with Testamentary Gifts and Estate Planning Programs Charity should play an Informational and Resource Role: Explanation why a Will and POA are fundamental instruments of stewardship, with or without a gift to charity Explanation of what happens if there is no Will or POA General Information re estate planning options Explain how donor can complete a basic Will guide Provide written description of full legal name of charity to assist lawyer preparing Will Recommend that donor get independent financial, tax and legal advice Establish broad network of experts

32 WILLS & TESTAMENTARY GIFTS QUESTIONS & DISCUSSION