Charities as beneficiaries

The judgment in the recent case of Ilott v The Blue Cross and others [2017] UKSC 17 was welcomed by the charity sector as a victory for testamentary freedom.

The case involved a claim by the estranged daughter of the deceased, who had lived financially independently from her for many years. The deceased recorded her reasons for leaving her estate to three charities rather than her daughter in a letter of wishes, citing the relationship breakdown between her and her daughter as the main reason.

Mrs Ilott, the daughter, claimed financial provision from the estate. The Supreme Court eventually reduced her award, largely leaving intact the legacies to the three charities involved.

The judgment recognised that a testator’s wishes should be paramount. If they choose to leave their estate to charity, the charity does not have to justify that by showing a connection to the testator.

Legacies are an important income stream for charities. A total of £2.24bn was received by charities in 2016. Charities rely on this source of income to carry out their charitable activities in order to meet their objectives.

Where a charity is named in a will as a beneficiary of an estate, the charity’s trustees are under a duty to ensure that any funds due to it (which includes legacies) are collected in. Therefore, if a charity is to receive less than it is entitled to under the will, for example as a result of a claim against the estate or a request for an ex gratia payment, the charity’s trustees are under a duty to account for this.

Charities must first ascertain the value of their entitlement from an estate and will therefore require a copy of the will and estate accounts in order to assess their entitlement. Where a claim is brought against an estate, the overriding objective of the trustees should be to select a legal solution which is in the best interests of the charity in accordance with the CC38 Charity Commission guidance.

The guidance outlines that trustees have a duty to secure or recover the charity’s assets, and participating in legal action may be a way of achieving this. Trustees must ensure transparency in their decision making and be able to justify their decisions in order to protect the charity’s reputation.

In light of these duties, the trustees will perform the same analysis as any individual faced with a legal challenge to its financial assets. In deciding whether to defend or accept a claim, the trustees will consider and assess the economic prospects of success or failure, whether any action is proportionate in the circumstances, and ultimately the impact on the charity.

Claims that affect charity beneficiaries include challenges to the validity of the will, claims for financial provision pursuant to the Inheritance (Provision for Family and Dependants) Act 1975, drafting errors such as referring to the incorrect charity name, and any action taken by executors which may cause a reduction to a charity’s entitlements by virtue of the costs being met from the estate.

Charity beneficiaries must be informed as soon as possible when any sort of claim is brought against an estate of which they are a beneficiary. In third-party claims against the estate, the executors must remain neutral; it is for the beneficiaries to respond to any such claim. It is, after all, their money which is at stake.Charity beneficiaries also receive requests for ex gratia payments. This relates to payments they are not legally obliged to make but may feel they are morally obliged to – for example, where the deceased left a wish to pay a small legacy to a friend but failed to detail that wish in a validly executed legal document.

Charities are able to make ex gratia payments even though this conflicts with their duty to ensure they receive the money due to them. In Re Snowden [1970] Ch 700, the judge ruled that the power to authorise an ex gratia payment was ‘not to be exercised lightly or on slender grounds, but only in cases where it can be fairly said that if the charity were an individual it would be morally wrong of him to refuse to make the payment’.

The charity beneficiary will require significant evidence as to the deceased’s intentions before agreeing to any payment, and if other charity beneficiaries are involved it will likely confer with them. Depending on the amount, the Charity Commission may have to authorise any ex gratia payments.

But, regardless of what legal vehicle a disappointed beneficiary may use to secure a payment from an estate, it is incumbent on the will-drafting solicitor to take steps to ensure as far as possible that their client’s wishes will be protected. In the event of a claim after death, perhaps the use of witness statements or video evidence will become a more powerful way of demonstrating the deceased’s wishes in the future. SJ

Lucy Gill is a partner at Foot Anstey

@FootAnstey

www.footanstey.com