The title of this article may provoke laughter, or perhaps, just head-shaking disbelief. But lifetime and estate donations to various levels of government do happen. The trick is to ensure that the donor’s intentions are carried out.
The Crown – i.e. federal and provincial governments – and Canadian municipalities are qualified donees under the Income Tax Act. Agents of the Crown are also generally included – for example, government agency or university crown foundation (a few may still exist). A gift to government provides the same tax benefits as a gift to a registered charity, but there are different planning challenges for estate donations.
Outright Donations
Occasionally a donor will make an outright, unrestricted gift to government. That is, a payment greater than taxes owing. This can be done each year as a voluntary act when you file your taxes. I understand that a few taxpayers exercise this option each year. Very few. An unrestricted gift may also be made by will. Even more rare.
An unrestricted gift is easy, however. It just needs to be delivered. How the money is spent is up the receiving government. Not surprisingly most gifts to government have restrictions imposed by the donor. Even deep commitment by citizens to the state does not always translate into deep trust.
Checks and Balances
And therein lies the planning rub. Donations to government are exceptional acts and, in my experience, there are few internal systems within government to handle donations or restricted purposes. This is true at all levels of government. The most common recipients are likely municipalities, which are qualified donees. Most have neither the systems nor the people to ensure donations are well managed. It’s may even be hard to get an official donation tax receipt.
Big entities and exceptional transactions are structurally a bad mix. Thus, most estate donors who want to support a particular function performed by government – recreation, parks, the arts, amateur sport, etc. – use some form of trust or foundation. Traditionally testamentary charitable trusts have been deployed to introduce a measure of annual oversight, as well as prudent management of funds held in trust. By deploying checks-and-balances, trusts keep the parties honest.
A public foundation with donor advised funds that has strong checks-and-balances in its annual granting process is another planning option. A legacy fund is simpler and more flexible for the donor and administrator. And governments tend to be more responsive to an established public foundation than an individual trustee. If conditions are not met the annual grant can be redirected to another beneficiary to meet the intended purposes. That’s usually enough of an incentive to ensure annual accountability well into the future.
Paying Down Public Debt
Some Canadian provinces have pitched the idea of donations to pay down public debt. (Some advice: my fundraising colleagues might be able to help craft a better case statement than Ontario’s pitch.) There is an infamous 1928 testamentary trust in the UK with this purpose. The National Fund was settled by an anonymous donor with £500,000, to be held in trust until there were sufficient funds to pay off the national debt.
In 2018, the UK Government requested the £400 million that has accumulated in the trust. In response to a cy-pres application, in 2022 the High Court approved the transfer of £600 million (good returns in 4 years!) to be used to chip away of the national debt – a modest contribution to offset a growing liability. The corporate trustee was undoubtedly not amused by this judicial interference.
If ever there was a story about the limits of charitable giving, this is it. Regrettably, the UK public debt is now approximately £2.9 trillion. As estate planners and lawyers know, it’s hard to predict the future.
