I was blessed to have grown up with a field in my backyard. This month, I’m sharing a wonderful and unique farming case we worked on over the last while that had one perplexing problem: how do we leave a gift to a charity that doesn’t yet exist?
Our family has always felt a deep connection to nature – sometimes that for my part, stems from growing up in Bruce County, with rolling fields and dark skies right out my backdoor. It wasn’t until I moved to the city that I even comprehended that I grew up in such a special place that let me put my hands in the soil and connect with “the dirt” as my farming friends liked to call it when we were kids.
My friend Alice knew that feeling as well, having grown up on a 270 acre farm not far out of London. Dark skies, rolling hills, and an abundance of wildlife nearby made it a special place for her as well. Her dad was a passionate regenerative farmer, and building back the soil’s web of life was a lifelong passion. When Alice’s dad passed away a few years ago, she and her husband Dave took over the farm, and have continued the family legacy.
Alice and Dave have worked closely with local conservation groups and charities to build an operation that they hope will serve as an example for keeping the farm’s ownership in the community – a community farm.. Over the years they have restored wetlands along the riverbank, while working hand in hand with local conservation authorities, neighbouring First Nations, and environmental charities. Their cattle rotate through pastures to mimic natural grazing patterns, and minimize phosphorus runoff. It’s an impressive operation. More recently they have opened the farm to eco-education events.
When I met Alice and Dave a few years back, they were envisioning a future where the farm could become a working charitable operation, as opposed to being a private enterprise. This makes sense, especially as the farm grows as an educational facility. A charitable, non-profit status would allow the farm to access further programs by accessing a variety of grants and donations that would otherwise not be possible if the farm remains a for-profit entity.
Alice and Dave’s estate planning presented us with a perplexing problem: They want to leave money to this future charitable enterprise, but it doesn’t yet exist! That presented us with an enormous challenge. So challenging in fact, it held up the completion of their new wills for many months. We had to find an elegant and practical solution.
Digging into the problem
Given that the farm charity is only hypothetical (at this point in time), Alice and Dave can’t name it as a beneficiary of their will. Today their farm is an unincorporated business – and one can’t leave a bequest to a business. They could leave funds to a family member that would run the farm – but even that can’t be guaranteed. At first, it seemed like an unsolvable problem.
It’s amazing though, what problems a little bit of creativity can solve. During our discussions, we concluded that even if the farm doesn’t become a charity, and even if the farm is sold prior to their passing, Alice and Dave intend to donate to environmental charities, particularly land trusts. That got me thinking about another solution that would ensure both a charitable receipt to their estate, and the flexibility to ensure funds flowed as per their wishes.
A community solution
In the last 20 years, many community foundations have set up “Donor Advised Funds” or DAF programs. The idea behind a DAF is that you donate to the community foundation, and then provide “advice” to the foundation on where to flow the funds. Essentially, DAFs are a way to detach the timing of your gift from the decision as to where the money flows. This can be ideal for people who might have a tax-triggering event (like the sale of a business, or a property), or who sometimes want to provide a stream of revenue to the charity but get the tax receipt immediately. The main criteria are that the foundation must flow through the funds to a “qualified donee” under the terms of the Income Tax Act, which for the most part means a Canadian Registered Charities.
Our big ah-ha moment was to realize that a DAF could solve our problem with funding a charity that doesn’t yet exist. We know the foundation DAF will be in existence in the future when Alice and Dave pass away. They can name the DAF at the foundation as the recipient of funds. Alice and Dave’s estate will get the tax receipt.
Since Alice and Dave “advise” the fund, they can leave a list of their wishes on what happens to their fund after they are gone. They can request that if the Farm Charity exists, then the money go there. If it doesn’t, then they can leave a list of the land trusts that they would like to support. Our problem is completely solved – we can accommodate a not-yet-setup charity into their will!
I researched and provided a shortlist of community foundation DAF programs to Alice and Dave, and they settled on a national-scope organization that is extremely flexible, and coincidentally was a particularly good fit to Dave’s background. They have already used it once, to help time a donation at the same time as we triggered some capital gains on their investments. Alice and Dave have also update their will, which was heavily simplified by including the DAF instead of a whole list of “either-or” clauses..
Even better, should one of them falter as they age, and be unable to make changes to their will, we won’t need to worry. The DAF can still take advice from the other spouse in case their priorities shift.
The service isn’t free. The DAF will charge a small fee to flow and steward the money, but that amount is reasonable relative to the, convenience and flexibility this arrangement allows. If needed, Dave and Alice can exit from the strategy anytime if warranted by a change in circumstances. It is a terrific solution to a unique problem.
Growing and nurturing the harvest
Alice and Dave’s story is a fantastic example of what happens if you get into a deep discussion beyond the surface of a problem and get your “into the dirt”. I’m proud of what we’ve managed to accomplish together, and how we found a creative and practical solution to something that was holding up their estate plans.
This fall, Dave and Alice are taking the crops off the fields with a lot less stress and can spend the winter focusing on turning the farm into a charitable operation. I’m excited to see how their plans develop, and can’t wait to visit them in the spring, when migrating birds arrive on their farm. A visit to their farm always brings me back to my own early days, exploring the pastures, and connecting to nature.
Many thanks to Alice and Dave for letting us share their ongoing story this month.
Sincerely,
Ryan