Terminated, Schwarzenegger-style (but not for charities!)

For various reasons, charities have become more prominent and numerous over the past decade or so. In many instances, organizations receive less (or no) government funding and so are forced to fundraise.

If necessary, the organizations become “charities,” as defined by CRA, so that donors can get tax credits when donating to their chosen charities.

Many more people are choosing to make charitable bequests in their Wills. It tends to be more common in families with no children, and in families who need funds while the Testators (or “Will makers,” under the new legislation) are alive but who still want to make donations upon death.

In a Will, it’s uncommon for a charitable bequest to fail because the charity no longer exists. Most people making Wills tend to choose charities that are well known, and stable. Every year, some charities in Canada do fail due to issues with CRA (and the CRA revokes their charitable status), but otherwise few charities fail.

This past April, however, reasons for judgement were released in the case Re McGregor Estate, in which a charity did fail, and the Court had to consider the distribution of the bequest in the Will.

Facts
The deceased, a widow, had an adult child who was mentally challenged. He was a patient at the provincial Woodlands Institution, which no longer exists.

In her Will, the deceased set a Trust for her disabled son for his benefit, to last as long as he lived. The Will then provided for a gift to an organization known as the “Auxiliary to Woodlands,” which the Court described as an (unincorporated) charitable association run by volunteers who had relatives in care at Woodlands, or who had a personal interest in helping the mentally challenged. The Auxiliary provided various services to the patients, including outings and other services that the institution itself did not offer.

Woodlands closed in 1996. The widow’s son was then moved to a group home in Aldergrove, operated by a (registered) society called “H.O.M.E.S.” He lived there until he died, in March 2013. When the son died, the value of the Estate was approximately $250,000.

The issue for the Court, having reviewed the Will, was what to do with the bequest to a society that no longer exists.

Issues and Law
In a situation like this one, the legal doctrine known as the Cy-pres doctrine applies (translated, it means “as near as possible”).

If a gift such as the one in the widow’s Will discloses or manifests a general charitable intent, as the Court said, the Cy-pres doctrine is activated, and the gift in the Will is given to another charitable purpose resembling as nearly as possible the original purpose indicated in the Will.

So, it appears that if a gift in a Will shows not only the gift to the organization, but also a charitable purpose (such as helping people with a certain type of disability), the doctrine will apply.

If the gift is interpreted to be only a gift to, say, a specific organization, a purpose may not be able to be inferred or described to a Court, in which case the gift lapses and the bequest is distributed under the rules of intestacy.

In this case, the Court held that the gift as expressed in the Will showed a general charitable intent: to help improve the lives of mentally challenged people through extra services and extracurricular activities.

Therefore, the Cy-pres doctrine applied, and the gift was transferred to the organization described above (H.O.M.E.S.), though on the condition that its use be limited to funding extracurricular activities of its patients, as that was the charitable intent that the Will suggested.

Summary
As the Court said in this case, there is a recognition that the law should work to uphold charitable gifts where possible. So in a sense, the Cy-pres doctrine operates to allow the Estate to remain on course. A charitable purpose is maintained.

It comes across as a powerful doctrine, because the Court ends up choosing an organization that the Will does not mention, and gives it a significant benefit in an effort to maintain the charitable purpose.

Significant as the Court’s power is, I believe that when drafting a Will, it is useful for the Testator to choose an alternate place for the gift, in case the charity benefitted under the Will is terminated, or otherwise stops operating. Then, an expensive Court action would hopefully be avoided, and the funds might go sooner to an organization that really needs it.

This column ran in the Richmond Review on June 4, 2014.