Tax For Estate Planners: Donations By Trust

For wills, in the “old days”, there was a distinction as to whether the estate had made a gift (deductible) vs. a distribution to a beneficiary (not deductible, even if a charity).

I remember this as a subject of stress at tax conferences, presenters gripping the podium, hyperventilating in the bright lights. If no discretion was given to executors as to the quantum of the donation or the choice of charity (they warned us) this could put in jeopardy the tax receipt to the estate.

Fortunately, because of a deeming rule, this is no longer the case for estates. However, our stressed out tax presenter may not rest, because the issue still remains for trusts.

Discretion

The key, as alluded to above, is discretion to the trustee.

Simply put, when drafting donations in alter ego and joint partner trusts, you must ensure that trustees have the discretion whether (or not) to make donations.

This means, of course, that the donations might never be made. Admittedly, some clients are reluctant to hand this discretion over to their trustees. If so, a compromise might be to provide their trustees with a non-binding list of charities and the quantum of the donations.

This is not a solution. Fundamentally, if settlors want a tax receipt for their trust, they have to rely on their trustees, giving them the discretion to donate (or not) and to whom.

Timing

As a final point of stress: the clock is ticking on the donations.

Typically trustees will want donations to be carried back to be used against the deemed disposition on death of the settlor. If so, the donation must be made by the trust’s filing due date for the stub year where the settlor died. So be quick about it!

If you have any further questions about donations (or tax questions related to estate planning), you can feel free to reach out to us. The author can be contacted directly at jonathan@rkwlaw.ca or 604.425.1123.