On October 17, 2013, the British Columbia Supreme Court in Norman Estate v. Watch Tower Bible and Tract Society of Canada, 2013 BCSC 2099, held that a gift subject to a condition stipulating that the donors could request a refund of their donation at any time was still a gift inter vivos and that the charity was entitled to keep the gift on the death of the donors.
Lloyd and Lily Norman were practising Jehovah’s Witnesses who made regular donations to the Watch Tower Bible and Tract Society of Canada (“Watchtower”), a registered charity. In 2001, Mr. Norman sent a cheque for $200,000 to Watchtower on behalf of himself and his wife. Along with the cheque, he included a letter outlining his understanding of this cheque as a loan and that the return of all or a portion of the amount could be requested. He also stipulated that following the death of both lenders (i.e., Mr. Norman and his wife), the funds left would remain the property of Watchtower. Watchtower confirmed in writing to Mr. Norman that he was engaging in a Conditional Donation Agreement, which would result in the funds belonging to Watchtower at the death of the survivor of Mr. and Mrs. Norman.
From the time they engaged in the Conditional Donation Agreement in 2001, until Mr. Norman’s death in 2009, the Normans advanced over $310,000 to Watchtower. Of that amount, $60,000 was converted into outright contributions for which the Normans received charitable donation receipts. The Normans never exercised their right to request a refund. Following Mr. Norman’s death (his wife had predeceased him), Watchtower issued a charitable donation receipt for the balance of the funds. Mr. Norman’s estate challenged Watchtower’s entitlement to the remaining funds.
The issue before the Court was whether the advancement of the funds under the agreement was a testamentary disposition. Both parties agreed that if it was, it was invalid because it was not executed in accordance with the Wills Act. The estate took the position that the agreement was testamentary because any funds advanced had to be returned to the Normans upon their request. Watchtower argued that the agreement was an inter vivos trust which the Normans intended to have immediate effect upon execution.
The Court held the agreement was not a testamentary disposition because the Normans intended for it to be effective immediately. The Court characterized the donation as a gift with a condition subsequent which formed an inter vivos trust. Consequently, Watchtower was entitled to the funds.
The Court stated the test for evaluating whether a disposition is testamentary is to determine whether the person who executed the disposition intended that it only take effect after his/her death and whether it is dependent on the death for its vigour and effect.
The Court further enumerated the following principles:
- whether something is testamentary depends on the intention of the maker;
- the intention is a question of fact;
- if the document is not intended to have any operation until the maker’s death, it is testamentary;
- if the document is intended to have effect and has effect of transferring some interest in the property or setting up a trust thereof in prasenti, it is not testamentary;
- the reservation of a right to revoke the transfer or bring a trust to a close does not necessarily have the effect of making a document testamentary;
- even where document is revocable by maker or enjoyment is postponed until the death its death, if at the time of its execution, the document is legally effective to pass some immediate interest in the property, the transaction will not be testamentary;
- the level of control the maker exercises over the property is an important factor; and
- the central question is whether the maker intended the document passes some immediate interest or it have no effect until his death.
The Court held that the Normans intended Watchtower to acquire an immediate interest in the funds and continue to be entitled to the remaining funds after their deaths. It pointed to the cover letter, which said upon the Normans’ deaths “these fund will remain the property” of Watchtower. It also referenced Watchtower’s response to Mr. Norman, which clearly explained the effect of the Agreement. It found the donation to be a gift which vested in Watchtower when the cheque was cashed but could be divested if the Normans exercised their right to request a refund. It also found an inter vivos trust implicit in the agreement because the Normans intended Watchtower to hold the funds for its own benefit and also for their benefit during their lifetime.
The Court did not find Watchtower’s issuance of a charitable receipt after Mr. Norman’s death to be fatal to Watchtower’s position because an earlier issuance of the receipt would have had retroactive tax consequences if the Normans had requested a refund. The delay indicated a desire to avoid tax consequences and not that the interest was not immediate. The Court also rejected the estate’s argument that the Normans had full control of the funds, because they could not demand payment on income earned on their donations or direct how their donations were invested.
Ultimately, the Court held Watchtower obtained an immediate and future interest in the funds and was accordingly entitled to the remaining funds.
This case provides support for the proposition that conditional donation agreements entered into with a donor, if drafted properly, can result in a charitable gift remaining with the organization upon the death of the donor. This will be so even if the donors retain the right to claim refunds during their lifetimes. Charities should therefore take care in drafting conditional donation agreements, if they wish them to have this effect.