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By Andrew Mackie, Managing Associate, and Elizabeth Ware, Senior Associate, from Foot Anstey
Foot Anstey are legal specialists taking an active role in a range of industries. Across all their services, they provide commercially-savvy,
expert advice that is easily integrated and actionable in your sector.
A large portion of income that charities receive comes from gifts they have been left in a Will. It is estimated that charity legacy income reached a record £4 billion in the year 2022/2023. Charities often face criticism for the way in which they manage legacy income. There is sometimes a perception – not entirely helped by the media – that they are greedy or insensitive, or that they overpay their staff. But charities provide often complex services that would not otherwise be available, and it would not be sustainable for them to be managed solely by volunteers. If charities are to be effective, they need to be run by professionals who know what they are doing – and those professionals are entitled to be paid for what they do. Equally, if charities are to support their beneficiaries, they need a steady income. Even the largest charities rely significantly on legacies, which often account for a substantial portion of their available funds.
With the above in mind, this article aims to provide some insight into the approach that estate administrators should take when dealing with charities as beneficiaries.
What should administrators expect of charity beneficiaries?
When a charity is notified that it has been left a gift in a Will, it has the same rights as it would were it a private individual. At the very least, it will want to see a copy of the Will and, where it is a residuary beneficiary, it will require a schedule of assets and liabilities. If it has an interest in the residue, it will also need to be involved in key decisions – if a property is to be sold, for example, or if a claim arises in the estate.
A charity is likely to be more sophisticated than the average beneficiary, as its team will have a greater knowledge of the probate process. Many legacy officers are qualified lawyers or have obtained a certificate in Charity Legacy Administration. They review numerous estate accounts and Wills, with the overall objective of ensuring that their charity receives what it is entitled to.
Charities should be notified of a gift they have been left, ideally within the administrator’s year and certainly once a Grant of Probate has been obtained. They have access to a service known as Smee and Ford, which notifies them when they are beneficiaries of an estate in which a Grant of Probate has recently been issued. Consequently, sometimes charities may contact administrators before administrators
contact them. Ideally, administrators should notify a charity as soon as possible when it is a beneficiary of a Will, as this will help it with budget planning and enable it to identify someone to provide a valid receipt for the gift. Generally, the open sharing of information will make the process much smoother.
Why do charities need all this information?
If a charity is a residuary beneficiary, it is entitled to receive estate accounts under the Administration of Estates Act 1925. However, charities are also subject to strict reporting requirements, meaning that they must keep detailed accounting records and prepare timely and relevant financial information. The Charity Commission’s guidance on this subject points out that significant time can elapse between the notification of a legacy and its final receipt. As a consequence, it makes clear that “internal financial controls should be directed at ensuring that all legacy income to which the charity is entitled is actually received and properly recorded in the accounting records”.
On top of this is the duty that a charity’s Trustees have to protect or secure (and, where necessary, recover) assets belonging to the charity, including legacies. If the Will is valid, and any conditions attached to the gift can be fulfilled, the charity will normally become absolutely entitled to the property concerned as at the date of death. It is therefore incumbent on the charity’s Trustees – acting through whoever has been given authority to deal with the charity’s legacy income – to ensure that the property is ultimately received in full. It may appear to the outside world that there are whole teams of people whose function is to pursue charitable legacies, but in practice this is no more than the law requires.
It is worth bearing in mind that, in England and Wales at least, individuals have complete testamentary freedom: if they wish to leave their estates to charity, they are entitled to do so. There are mechanisms in place to enable certain dependants to claim that, notwithstanding a Deceased’s wishes, they ought to have been provided for but these are not always successful – particularly if the charity concerned chooses to contest the claim.
Why and when do charities choose to litigate?
The Charity Commission accepts that the duty to recover assets may require Trustees to defend or even bring legal action where they feel they have a good case for doing so. If a claim is brought against an estate in which there are charity beneficiaries, they should therefore be given full details as soon as possible so that their Trustees can decide whether to defend it.
When claims are intimated against an estate, it is appropriate for a charity to seek independent legal advice. This allows the administrators to maintain a position of neutrality, and ensures the charity is taking the appropriate steps to protect its legacy. Trustees can also seek the Commission’s advice as to whether they would be acting in accordance with their duties by litigating, although they will not necessarily receive a swift response and may simply be referred back to their professional advisers.
Before bringing or defending any claim, charities must be mindful of cost/benefit considerations and weigh up the potential for reputational damage that might arise, bearing in mind the merits of the claim. They must consider whether the likely value of the gift will justify the potential cost of litigating. The Commission used to take a fairly strong view on this subject, stating in its guidance that litigation should always be seen as a last resort. This was probably the result of a few high-profile cases in which charities – even though they were successful – were criticised for having incurred disproportionate costs in bringing or defending their claims. More recently, the Commission has softened its stance, but it still expects charities to explore other avenues – such as mediation or settlement – before proceeding to litigation.
Conclusion
A gift left to a charity in a Will is always of great significance and a charity is under a duty to ensure it secures the legacies it has been left.
Full disclosure and a willingness to assist charities in meeting their reporting obligations will help to streamline the process for all involved.
This article is featured in the spring 2024 edition of our quarterly news digest, Entitlement. Download your free copy of Entitlement for more informative articles.
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Topics: Beneficiaries, Estate administration, Guest writer
