The Public Guardian and Trustee and Charities

The Office of the Public Guardian and Trustee (the “PGT”) has wide jurisdiction over protecting the interests of charities and charitable property. That jurisdiction includes restating charitable purpose trusts through court order without appearing before a judge, and conducting investigations into the misallocation of charitable property. This article discusses these powers of the PGT, and provides best practice tips to those engaging with the PGT in these situations.

Jurisdiction of the PGT Generally

The PGT is part of Ontario’s Ministry of the Attorney General.¹ Its jurisdiction is broad, and generally includes providing services to protect the legal, personal and financial interests of certain individuals (particularly mentally incapable adults) and estates, as well as protecting charitable property within Ontario.² The PGT’s website discusses its services in detail, which are summarized below.³

Protecting the rights and interests of mentally incapable persons. With respect to protecting the rights and interests of mentally incapable adults, the PGT can conduct investigations, manage the incapable person’s finances, make decisions about their personal care, appoint private guardians of property, arrange for legal representation in capacity proceedings under the Substitute Decisions Act, make decisions about an incapable person’s treatment and their admission to long-term care, review accounts submitted by private guardians and property and estate trustees, and act as the incapable person’s litigation guardian or legal presentative.⁴

Administering estates. The PGT protects the interests of potential heirs/beneficiaries when an Ontario resident dies and leaves an estate without anyone available to administer it. The PGT might apply to be appointed estate trustee if the deceased was an Ontario resident or owned real estate in Ontario, the deceased did not make a will or the executor in the will has since died or become incapable, there are no known next-of-kin living in Ontario that are not minors or mentally incapable, and the estate is at least $10,000 after payment of funeral expenses and debts owing.⁵

Account for the Superior Court of Justice, Trust Accounts for Cemeteries, Capacity Assessment Office. The PGT’s mandate goes beyond that of protecting incapable persons and administering estates. It operates the Account of the Superior Court of Justice and holds trust funds for minors and litigants in Ontario’s civil courts. It manages trust funds that cemeteries are required to keep to care and maintain their grounds and monuments. The Capacity Assessment Office (“CAO”) wing of the PGT trains capacity assessors and operates a financial assistance program for those who cannot afford the cost of an assessment. The PGT also engages in public education outreach and provides written materials on a number of related topics.

Jurisdiction of the PGT with respect to Charities

In addition to the services discussed above, the PGT assists in protecting charitable assets in Ontario. These sub-services include reviewing applications by organizations who are seeking charitable status to determine whether their activities are in fact “charitable”. The PGT may also help resolve situations where a bequest was made in a Will to a charity but that charity no longer exists, which often result in “cy-pres” distributions. The PGT also has the power to conduct public interest investigations into the alleged misuse of charitable property and may represent the charitable interest in court.⁶

Reviewing Applications for Charitable Incorporation

Where an individual seeks to incorporate a charity for an object that is not a “pre-approved object”,⁷ they must apply for incorporation to the PGT for approval, along with proposed object clauses.⁸ The PGT may initially refuse to approve an application for a number of reasons, including the objects are not wholly or exclusively charitable, that the objects are too vague, there are concerns that the proposed charity will not be properly administered, and that the organization is primarily promoting private members’ interests or is pursuing political purposes.⁹

Cy-Pres Schemes

Where it has become impossible or impracticable to apply charitable property to the original purposes, the PGT can assist with the making of “cy-pres” arrangement to establish new purposes for the charitable property, which are as similar as possible to the original purposes.¹⁰ The intent is to devise a scheme so that the testator’s intentions are followed as nearly as possible where the gift would otherwise fail.¹¹

Courts have the inherent jurisdiction to to direct trust property to be applied to some other charitable purposes under the cy-pres doctrine.¹² Clear charitable intentions will not fail simply because the specified mode to execute (e.g. the named charity no longer exists) is impossible.¹³

Where a charitable intent was created, the court can devise a scheme different from that set out in the will in two circumstances. The first is where the charitable objects or the mode of achieving the object cannot be achieved either because of impracticability or impossibility. In those cases, the court will intervene where it must be impossible for impracticable to carry out the original intention of the settlor, and the donor had a general or overriding charitable intent as opposed to an intent to benefit a specific institution.¹⁴ If no general charitable intent can be shown, the property will return to the donor on a resulting trust.¹⁵ The second circumstances is where there is a case of supervening impossibility or impracticability such that the charitable objection or the mode of achieving that object has become impossible or impractical. In this second circumstance, it is not necessary to demonstrate a general charitable intent.¹⁶

Situations in which courts have used the cy-pres doctrine to permit the execution of a charitable intention include the when an orphanage beneficiary no longer operates as an orphanage at time of testator’s death,¹⁷ and varying the administration of a college fund after the college closes.¹⁸

Restatement: Charities Accounting Act, s.13

Part and parcel of the PGT’s ability to assist with cy-pres distributions is the power afforded to the PGT under section 13 of the Charities Accounting Act (“CAA”). Section 13 of the CAA reads the following:

13 (1) A draft order or judgment that could have been made by the Superior Court of Justice under this Act, under any other Act dealing with charitable matters, or in the exercise of its inherent jurisdiction in charitable matters, shall be deemed to be an order or judgment of that court if the following persons give a written consent to its terms.

That section provides a simplified procedure to obtain a Court Order without having to go to Court or commence formal Court proceedings.¹⁹ Instead of preparing an application record or appearing in court, the individual seeks the written consent of the PGT. The intention is to make it less expensive and simpler to obtain the PGT’s consent.

The PGT recently published some examples of Orders that may be obtained under s. 13 CAA, in addition to cy-pres orders, including the following:²⁰

• Orders under the Court’s scheme-making powers, including orders where the charitable trust makes provision to appoint replacement trustees following a trustees’ retirement, and orders for new investment powers where the trust requires investment in unavailable investments.²¹
• Revesting land in a charity under s-s. 8(5) of the CAA
• Orders under ss. 3(3) of the CAA to extend the time by which a charity must dispose of a business interest
• Orders for directions if they pertain only to charitable matters, including orders appointing new trustees; and
• Orders under ss. 35(1) of the Trustee Act excusing trustees or fiduciaries for having committed a breach of trust where they had acted honestly and reasonably.

So how do you get these Orders from the PGT? Pursuant to section 13(1) of the CAA, the individual requires the written consent of the PGT and every other person who would have been required to be served if the matter proceeded in Court.²² Those consents are required for the draft order to be deemed a court order. The requests for consent form the PGT must be in writing. For specific procedures on requesting the PGT’s consent for a section 13 Order, please review section 2 of the PGT’s presentation “Procedures for Obtaining An Order Under s. 13 of the Charities Accounting Act”.²³

Investigating Complaints Against Charities

The PGT may inquire into complaints about the misuse of “charitable property”, which includes anything donated that belongs to a charity or is used for a charity, and specifically includes money, real estate, food, clothing, trademarks or goodwill.²⁴

There are three general types of complaints about a charity that the PGT may inquire about:

1. Charitable property is not used for the purposes of which it is intended;
2. Complaints about those responsible for the administration of charities; and
3. Complaints about a business substantially controlled by a charity.

Section 6 of the CAA permits a judge to order directing the PGT to conduct an investigation following a complaint into the way a charity has solicited or procured funds, or with respect to the manner in which those funds have been dealt with or disposed of.²⁵ The PGT’s mandate to conduct an investigation under the CAA is narrow, focused on financial management, and must be involved only on reasonable and probable grounds.²⁶ An investigation under the CAA can only be invoked where there is real mischief to the public at large.²⁷ The threshold question is whether the public interest will be served by an investigation by the PGT into the allegations underpinning the complaint.²⁸ The PGT’s reporting is to the Attorney General; not to the complainant donor of the charitable gift.

While the PGT has significant flexibility in conducting an investigation, Ken Goodman of the PGT has outlined the following steps in a PGT’s investigation.²⁹ First, the PGT requests and reviews information from the subject charity, after which the PGT may request clarification from the charity or require that it take certain actions. If the charity refuses or fails to provide the requested information, or the charity does not take the required action, the PGT may require a court audit or “passing of accounts” pursuant to section 3 of the CAA, whereby the charity will be required to file its accounts in estate form with the court and the PGT, and which shall be reviewed by the court for approval.³⁰

Avoiding PGT investigations should be of utmost priority to the directors of charities. Unfortunately, investigations may be prompted from issues related to the charities’ internal governance, its use of charitable property, and conflicts of interest.³¹ Several of these issues arise from directors failing to appreciate and comply with their fiduciary duties to the charity, including the duties to know the purpose of the charity, to review past administration to correct problems, to handle property with skill, care and diligence of a prudent person, to avoid conflicts of interest, to carry out the charitable purpose, to act gratuitously, and to account.³²

If faced with an investigation, it is critical that the charity properly respond to the PGT’s requests for information, much of which may already be required under s. 2 of the CAA. Rather than remain silent, defensive, or provide inconsistent information, the charities’ directors should provide organized and comprehensive responses to the PGT that provide necessary context to properly explain the rationale of certain actions taken.³³ While unnecessary delays in responding should be avoided, charities are entitled to obtain professional advice from lawyers and accounts before forwarding any information.³⁴

Conclusion

Knowing the scope of the PGT’s powers in protecting charitable interests is critical for lawyers and estate planners dealing with charities and the administration of charitable property. The PGT can be of great assistance where the variation of a charitable trust requires court, as section 13 of the CAA permits the PGT, in some circumstances, to effect those variations without the need of bringing an expensive application or motion before the court. In other cases, lawyers may find themselves advising charities that are facing an investigation from the PGT stemming from certain complaints, in which case the charities should be prudent in ensuring that they are providing all requested information to the PGT with explanations where needed, while also seeking the advice of lawyers and accountants before providing this information. In both circumstances, cooperation with the PGT is key.