In the spirit of giving this holiday season, many will donate to a favorite charity. One common way to donate is in the form of a "conditional donation agreement". Many conditional donation agreements contain limitations on how the donated funds can be used.
The recent BC Supreme Court case of Norman v Watch Tower Bible and Tract Society of Canada1 considered a different kind of conditional donation agreement, whereby the funds could be used by the charity, but would be returned to the donor in the event of personal need. Upon the death of the donor, the remaining unused funds of the donation would vest with the charity.
The issue in dispute in Norman was whether the conditional donation arrangement in question constituted a testamentary disposition, or an inter vivos trust. The Plaintiff (the Normans' estate) argued that the conditional donation was a testamentary disposition, such that the estate was the proper recipient of the donated funds. The Defendant, the Watch Tower Bible and Tract Society (the "Society") took the view that the donation was a gift with a condition subsequent that created an inter vivos trust – meaning that the funds would belong to the Society.
The facts in Norman were not in dispute, and the matter proceeded by way of a summary trial.
Mr. and Mrs. Norman were practicing Jehovah's Witnesses throughout their lives. They were regular donors to the Society, which is the registered charity representing Jehovah's Witnesses in Canada.
In 2001, Mr. Norman made a donation in the amount of $200,000, which he initially described as a "no interest demand loan". The Society had certain policies in place that allowed money given under a "special arrangement" to be returned to the donor should the donor have personal need for it in the future, and upon death of the donor the donation would vest with the charity. It was unclear to the Society whether the Normans intended such an arrangement. So, the Society forwarded the Normans an agreement, which they executed (the "Conditional Donation Agreement"). The Conditional Donation Agreement was in line with the Society's special arrangement policy and stipulated that the $200,000 donation, and all future donations, were subject to the same terms.
Between 2001 and 2009, the Normans advanced a total of $310,000 to the Defendant under the Conditional Donation Agreement. During the same period, approximately $60,000 was converted by the Normans into outright donations, for which charitable tax receipts were issued. When Mr. and Mrs. Norman passed away, $250,000 remained in the conditional donation.
By contrast, in 1997, the Normans made a $250,000 no-interest loan to their congregation to assist in the construction of their local Kingdom Hall. The loan agreement stipulated certain repayment obligations. However, the loan was later converted to a promissory note that stated in the event of one of the Norman's deaths the balance owing on the loan was to be paid to the surviving spouse, or if both died, to their estate.
In the result, the court determined that the Conditional Donation Agreement was intended to have immediate effect, and was therefore not a testamentary disposition. The court preferred the view that the Conditional Donation Agreement was a gift with a subsequent condition that created an inter vivostrust.
At the heart of the testamentary disposition "test" is the question of whether the person executing the disposition intends that it shall not take effect until his or her death. The court's task in these types of cases, since the person who executed the disposition has since passed away, is to glean the deceased's intentions from looking at (1) the document itself, and (2) the relevant surrounding circumstances. Some of the factors the court will look at include:
whether the document is intended to have operation during the maker's lifetime; and
- the level of control exercised by the donor while alive (retaining a greater level of control typically indicates that the donor intended a testamentary disposition).2
The court found that the Normans intended for the Conditional Donation Agreement to be an inter vivos trust, and not a testamentary disposition. In reaching this conclusion, the court observed that:
the Normans intended for the Society to acquire a proprietary interest in the funds immediately;
the Society took steps to clarify with the Normans that, the key difference between a conditional donation and an interest free loan was what would happen to the money upon their death. In the case of a loan, the funds would be returned to their estate, whereas in the case of a conditional donation the funds would "automatically remain" with the Society;
the language used in the Conditional Donation Agreement was consistent with what has been described as a gift subject to a condition subsequent;
once the Normans signed the Conditional Donation Agreement, the Society acquired "an immediate and future interest in the funds"; and
- the ultimate disposition of the conditional donation funds did not depend on the Normans' deaths, but rather on their decision not to request a full refund during their lifetime.
The Normans' estate argued that the Normans retained the ability during their lifetime to deal with their money as they wished, by requesting a refund in accordance with the terms of the Conditional Donation Agreement. The estate argued that the ability to exercise this degree of control over the funds was consistent with a testamentary disposition.
The court disagreed, holding that "any refund request had to be in accordance with the terms of the Conditional Donation Agreement," meaning that the "Conditional Donation Agreement had immediate effect in governing the parties" and was thus more akin to an inter vivos trust arrangement. Moreover, the court noted that "the Normans did not have the power to take back or change the Conditional Donation Agreement itself," and "could not demand payment of the income earned on their donations, direct how their donations should be invested or used, or change the condition to permit refund requests to be made orally or by a personal representative". The Normans were restricted to requesting a return of all or a portion of their contribution pursuant to the terms of the agreement.
In the end, the court determined that the Conditional Donation Agreement was a gift that was intended to have immediate effect, and was not a testamentary disposition.
The Norman decision turned on the specific circumstances of the case, and similar disputes will likely be decided on a case-by-case basis. Nevertheless, when considering how to donate this holiday season, donors should be mindful of the factors cited in the Norman decision in order to ensure that their gift has the desired effect. The level of control exercised over the donation during the lifetime of the donor will likely weigh heavily in future decisions of the court on this issue.