One of the difficulties that can arise in managing a charitable
trust relates to the disbursement quota requirements that apply to
registered charities. In general, these rules require a charitable
trust to spend a minimum amount annually (currently 3.5% of the
charity's investment assets) on charitable activities,
including gifts to other qualified donees. If the minimum amount is
not disbursed, the trust's charitable registration may be
These rules can create an issue for the trustee where the
charitable trust does not have sufficient income to meet its
disbursement requirements, and the terms of the trust do not allow
the trustee to encroach on capital. This was the issue in a recent
case called Fenton Estate, where the deceased established
a charitable trust in his will, known as the "Tony And Mignon
Fenton Trust" to support the infirm elderly in need of home
care in Oak Bay, British Columbia. The terms of the will provided
that the trustee was to hold the capital of the trust, in
perpetuity, and to distribute the net annual income of the trust to
organizations or individuals that supported the charitable purposes
of the trust.
The problem was that due to historically low rates of return on
investments, the annual income of the trust was not sufficient to
meet the 3.5% disbursement quota requirement. The trustee was in a
difficult position because the terms of the trust didn't allow
the trustee to encroach on capital in order to meet the
disbursement quota, but if nothing was done, the charitable status
of the trust could be jeopardized. Accordingly, the trustee applied
to the Supreme Court of British Columbia for an order allowing the
trustee to use a portion of the capital of the trust in order to
meet the disbursement quota requirements.
The Court found that the objects and purposes of the charitable
trust became impossible or impracticable to attain as a result of
the combination of low returns on investment, the disbursement
quota requirement and the terms of the trust which allowed
distributions of income only. Accordingly, this fell within the
Court's discretionary power under its cy-pres
jurisdiction, which allows the Court to create a scheme for a
charitable trust if the purposes of the trust become impossible or
impracticable to carry out. Applying this doctrine, the Court was
able to authorize the trustee to encroach on capital gains in any
year it was necessary to add some part of capital gains to income
in order to meet the disbursement quota.
When setting up a charitable trust, in a will or otherwise, it
is important to give the trustees some flexibility (such as a
limited power to encroach on capital) so that they can ensure the
trust is able to meet its disbursement quota requirements.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).