Legacy income

Legacies are a vital, albeit somewhat unpredictable, source of income for many charities. The amount charities receive from legacies in the UK is approaching £2 billion per year. It is commonly felt, however, that the amount being left to charity is likely to reduce in these difficult economic times.

I always find it surprising that the majority of people in the UK (the figure is probably somewhere around 70%) die without having made a will. Charities of course receive nothing under the intestacy rules. Of those people who do leave a will, it is estimated that only around one in seven contain a gift to charity.

If these figures are correct, this means that only around 4 per cent of people leave a legacy to charity. Only a small number of those legacies will be subject to some form of dispute. Nevertheless, we are seeing an increasing number of challenges being made to peoples’ wills, which is bound to have a knock on effect on the amount ultimately received by charities.

Rising legacy disputes

Although it is impossible to give any definitive answers, my view is that the number of legacy disputes is rising as a result of a number of factors. We are generally becoming wealthier and testators are consequently leaving larger estates to be argued over. People appear less reticent now than in previous generations to fight over what they regard as rightfully theirs. Family arrangements are much more complicated now than they were in previous decades – with second and successive marriages being a common thread in family squabbles affecting an estate. We are also living longer, with diseases such as Alzheimers becoming more common, with the result that questions are frequently raised over whether a testator had the requisite capacity when their will was made. These factors have combined to increase the number of will disputes – and barely a day goes by without another headline appearing in the newspapers involving the words family, will, dispute, and millionaire.

In the vast majority of probate disputes, a charity due to receive a legacy under the will becomes involved involuntarily. The charity trustees then often have a difficult path to follow in deciding how best to deal with the matter. They are conscious of their duties to their charity and will want to maximise its income. On the other hand, they will be mindful not to incur adverse publicity that could affect the charity in the longer term if they are seen to be acting too aggressively or behaving unreasonably.

In my experience, it is usually the larger national charities that effectively have to be run as commercial enterprises that may take a hard line where one of their potential legacies is disputed. They have the resources to instruct large specialist law firms to defend their entitlements – and why shouldn’t they? At the other end of the scale, the smaller more local charities often cannot afford to employ specialist lawyers, or indeed any lawyers at all, to help them. They are also frequently very concerned about the potential for adverse publicity if it were to become known that they were arguing against some ‘poor deserving claimant’. This can lead to such smaller charities often either accepting claims which may lack merit, or being forced into a settlement not necessarily in the charity’s best interests because of a lack of resources to properly deal with a claim.

Types of dispute

There are a wide range of ways in which a legacy dispute may arise. Most commonly, a charity or a number of charities may be named as residuary beneficiary in a will. Any dispute over how the estate is to pass will therefore potentially have an adverse effect on what the charity will ultimately receive. Alternatively, a charity may be entitled to receive a specific pecuniary legacy, which may be delayed, reduced, or even extinguished because of a dispute about the will.

A will can be contested in a variety of ways. It may be alleged that the will is invalid due to a lack of testamentary capacity, a want of knowledge and approval or as a result of undue influence or improper execution – or as a combination of all of these grounds. Alternatively, there may be no dispute about the validity of the will, but an issue over what should be in the testator’s estate. Such claims can be made by way of proprietary estoppel, constructive or resulting trusts or under the Inheritance (Provision for Family and Dependants) Act 1975. All claims of whatever nature will almost certainly affect how quickly a legacy may be received by a charity, and frequently will affect the amount ultimately received.

How to respond?

So what should a charity do when faced with a dispute concerning a legacy? Very rarely will the charity have any direct knowledge of, or involvement in, the facts which have led to the dispute. Some charity trustees may feel the correct (and cheapest) thing to do is adopt a neutral stance and simply abide by any decision which the court may make. Others will feel, or be advised, that doing nothing is not in the charity’s best interests and that an active part in defending (or indeed bringing) a claim is required. The correct approach will very much depend upon the facts of the individual case, as well as on the views of the trustees and those who advise them – so there is no clear, ‘one-size fits all’ answer and each case must be viewed on its merits.

Most smaller charities may only be involved in legacy disputes on rare occasions and so the issue might not be overly important to them. However, a dispute is much more likely to arise where an estate, or legacy, is large and there is more at stake to be argued over. At the other end of the spectrum, the larger charities have a huge legacy income and can expect disputes to arise on a reasonably regular basis. Cancer Research UK, for example, received around £150 million from legacies in 2011. Even a small proportion of legacy disputes from that total would therefore still involve significant numbers.

Often the best advice for a charity is to review the information about the possible claim in a critical, objective manner. Once the charity has sufficient information to be fully informed about the matter, if the claim has merit it may well be in the charity’s best interest to seek a compromise without proceedings being issued. If the claim clearly lacks merit, a robust response highlighting its weaknesses may be sufficient for a potential claimant to think twice about continuing given the risk for them on costs. The less clear-cut cases will make evaluating a claim more difficult and a charity may adopt a risk analysis on a primarily financial basis, bearing in mind the expense of litigation and the possibility of at least some element of irrecoverable costs. In these borderline cases, the approach of the trustees and their advisers is likely to vary from charity to charity.

Where multiple charities are named as beneficiaries in the same will, the usual position is that the first large named charity will take the lead in dealing with the case and may pick up the costs itself.

Other points to consider

Trustees should be advised on the possibility of mediation, as this is usually ideally suited to probate disputes. Even if mediations are unsuccessful, they usually result in the parties having a much clearer understanding of the opponent’s position and the strength of their case.

Trustees and their advisers should not overlook the tax implications any claim or compromise may have, as of course charities are generally exempt from inheritance tax on any legacies they receive. A claimant arguing against the estate and the charity is unlikely to be exempt, meaning that there could be an extra tax liability if the legacy to the charity is reduced.

Where a potential dispute arises, trustees should seek specialist advice as soon as practicable and attempt to resolve matters as quickly as possible and at minimum cost. All those who have been involved in court proceedings will know just how lengthy and expensive such actions can be.

Once proceedings have been issued trustees should be aware that cases come into the public arena and are frequently reported by the press. Although there are no statistics available on this as far as I am aware, there is a risk that any such publicity may well have an adverse effect on the charity concerned if it is felt by observers, and potential donors, that the charity is taking too hard a line or behaving unreasonably. Having said that, I suspect that conversely there will be some possible donors who may adopt a more sympathetic approach to ‘that poor charity being sued by a money-grabbing relative’. It is difficult to gauge how cases involving charities are perceived and making broad generalisations is difficult and unwise. The typical headlines loved by the newspapers never reveal the true stories of what are often very involved and complicated cases, and so even in a claim where a charity may have little part to play, it may be portrayed as the villain of the piece. The claim brought recently by Mrs Gill against the RSPCA springs to mind, with the headline ‘RSPCA got my £1.5m inheritance’ appearing in The Times.

Charities will no doubt continue to campaign to raise awareness of their worthy causes, with the ‘remember us in your will’ campaign helping a great deal. With such a large proportion of the population failing to make a will in the first place, the potential for raising legacy income for charities is clear. We all need to be educated that leaving a will is one of the most important things we should do. Once that idea has been more universally accepted and followed, we should hopefully see charities of all sizes across the country receiving a greater number of legacies than is currently the case. If everyone has a properly prepared will, then fewer legacies to charities should be disputed – although I suspect there will always be enough squabbles to keep us specialist lawyers busy!