The Canada Not-For-Profit Corporations Act And Quebec Trust Law: A New Opportunity For Quebec Donors

Introduction

It has been increasingly recognised by commentators that the next generation of philanthropists have a different approach to giving than did past generations.1 Donors today have increased expectations on the use of their donations and an increased desire to participate in how their funds are spent. Charities are responding to this change in donors' behaviour by permitting donors to restrict the use of their funds or to participate in the decision making process as to how funds are spent. Charities also know that involved donors typically give more than uninvolved donors.2

To permit such participation or to impose such restrictions, several legal vehicles are available to donors. One of those vehicles is the charitable purpose trust. A charitable purpose trust has been described in the Restatement of Trusts3 as follows:

A charitable purpose trust is a fiduciary relationship with respect to property arising as a result of a manifestation of an intention to create it, and subjecting the person by whom the property is held to equitable duties to deal with the property for a charitable purpose.

In essence, a charitable purpose trust is a trust that is administered by its trustee for the furtherance of a charitable purpose. When a donor makes a gift to a charity using a purpose trust, he or she creates a separate trust that must be administered in accordance with the law of trusts, which includes the prohibition from using the funds given for a purpose other than the purposes set out in the trust deed.

In addition, the Canada Revenue Agency (the "CRA") takes the position that if the trustee is already a registered charity, then a charitable purpose trust is not required to be registered separately by the CRA as a registered charity, thus avoiding registration delays.4

General Prohibition Against Corporate Trustees in Quebec and Exceptions

With the adoption of the Civil Code of Québec (the "CCQ") in 1994, Quebec introduced the social trust, which is essentially a purpose trust. Article 1270 CCQ provides that a social trust is a trust constituted for a purpose of general interest such as a cultural, educational, philanthropic, religious or scientific purpose.5 It is prohibited by article 1270 CCQ from having the making of profit or the operation of a business as its main object. The Quebec social trust provides a complete code for the operation of such a trust and would be a convenient, as well as, an efficient vehicle for donors to use. Unfortunately, the use of purpose trusts in this manner is generally not permitted in Quebec due to a technical prohibition contained in the CCQ. The CCQ contains a general prohibition against corporations acting as trustees unless such corporations are authorised by law to act as such.6 The CCQ, which lays down the jus commun7 (or common law) of Quebec, creates this general prohibition at article 304 CCQ, which provides:

304. Legal persons may not exercise tutorship or curatorship to the person.

They may, however, to the extent that they are authorized by law to act as such, hold office as tutor or curator to property, liquidator of a succession, sequestrator, trustee or administrator of another legal person.

304. Les personnes morales ne peuvent exercer ni la tutelle ni la curatelle à la personne.

Elles peuvent cependant, dans la mesure où elles sont autorisées par la loi à ce titre, exercer la charge de tuteur ou de curateur aux biens, de liquidateur d'une succession, de séquestre, de fiduciaire ou d'administrateur d'une autre personne morale.

[Emphasis added]

Article 304 CCQ is completed by article 1274 CCQ, which is found in Title Six of Book Five governing the law of trusts, which reads:

1274. Any natural person having the full exercise of his civil rights, and any legal person authorized by law, may act as a trustee.

1274. La personne physique pleinement capable de l'exercice ses droits civils peut être fiduciaire, de même que la personne morale autorisée par la loi.

Thus, any trustee other than a natural person must be authorized by law to act as a trustee. The CCQ does not provide any guidance as to what type of legal authorization is contemplated by articles 304 and 1274 CCQ. It is accepted by doctrine that the law can be either an act of the Quebec...