Charitable Gifts by Estates and Trusts

EXCERPT FROM TAXATION OF TRUSTS:  CHARITABLE GIFTS BY ESTATES AND TRUSTS

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Reprinted from Chapter 3 “Taxation of Trusts”, s. 3.4.1 “Summary”, p. 191, in

Taxation of Trusts and Estates: A Practitioner’s Guide 2011,

by Larry H. Frostiak, John Poyser and Grace Chow, by permission of

 Carswell, a division of Thomson Reuters Canada Limited.

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A trust is an individual and can make a charitable gift.  Where the trustee has the discretion to make or not make a transfer to charity then the transfer will generally be characterized as a gift.  As a gift, it then qualifies as a charitable donation that can be used by the trust on the T3 Return, claiming tax relief under subsection 118.1(3).  Not all transfers of property from trusts to qualified donees will qualify as charitable gifts, however.  A mandatory transfer of trust property to a charity, without the same discretion on the part of the trustees, is not a gift but a capital distribution.  As a capital distribution, the value of the transferred property cannot be claimed as a charitable donation on behalf of the trust or estate.  Where that occurs there still may be opportunities for the settlor of the trust to take advantage of the transfer of property in securing use of the charitable receipt on the settlor’s tax return.  The most common opportunity to do so is presented by subsection 118.1(5) which deems certain gifts by will to be gifts in the settlor’s year of death.  Since March of 2001, treatment as a gift in the year of death under subsection 118.1(5) has been extended beyond mandatory transfers and now extends to a broad collection of discretionary transfers from estates to qualified donees.