Estate Donations to Government

The title of this blog may provoke laughter, or perhaps, just head-shaking disbelief.  But 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. This can be done each year as a voluntary act when you file your taxes. I understand that few exercise this option. An unrestricted gift may also be made by will.  Also quite 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.

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.  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, etc. – use some form of trust. Traditionally testamentary charitable trusts have been deployed to introduce a measure of annual oversight.  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.)  There is an infamous 1928 testamentary trust in the UK with this purpose.  It was settled by an anonymous donor with £500,000, which was to be held in trust until there were sufficient funds to pay off the national debt.  The UK Government now wants the £400 million that has accumulated in the trust.  Regrettably, the UK public debt is now approximately £1.4 trillion.  It’s hard to predict the future.