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| Path: Main Street : Resources & Library : Research Articles : Feature Article |
Charities can make good use of ten year trust rule giftsAugust 22, 1994; Canadian FundRaiser
The following article appeared originally in the CAGP Waterloo-Wellington Round Table News.
Bequests and ten-year trust rule gifts allow charities to build endowed capital reserves that will produce a new source of income and provide financial security. For that reason, charities should be aware of, and understand, Revenue Canada's policies and rules, which are outlined below.
Every registered charity has a disbursement quota, an amount that it must spend annually for charitable purposes. The rules are different depending upon the category of charitable organization.
In general, 80 per vent of receipted gifts must be disbursed in the following year, leaving 20 per cent of the gifts for non-charitable expenses like fundraising. Certain gifts fall outside the calculations for the disbursement quota. They are:
Such gifts are very important to a charity as they can be "banked" as an endowment, because no disbursement needs to be made. Ten-year trust rule gifts are "subject to a trust or direction to the effect that the property given, or property substituted, is to be held for a period of not less than ten years." For example, a gift of a life insurance policy should be established under the ten-year trust rule. According to Revenue Canada, the proceeds from the life policy, as well as the premium payments, must be held for ten years. Details are in Revenue Canada's Interpretation Bulletin IT-2443, Gifts by Individuals of Life Insurance Policies as Charitable Donations. Charities must document that a ten-year trust rule has been made. Revenue Canada's official requirements can be found in Information Circular 80-10R.
- a gift of capital by way of bequest or inheritance
- a gift which is subject to a ten-year trust rule
- a gift from a registered charity
The gift must be recorded in writing, along with the charity's name, the amount of the gift, the date and serial number of the receipt. The trust or direction should be attached to the charity's duplicate receipt.
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