One of the many interesting aspects to practising in the legacy sphere of charities law is the obscure legal doctrines and rules that occasionally rise to the surface.
In this update we review two legal presumptions, rarely encountered, that have arisen in the press or in our practice recently. We also look at specific issues causing difficulties as a result of delayed grants; and consider the importance of ensuring charities are correctly named in a will.
The presumption against double portions
While applying rarely, given the right circumstances, this doctrine can be used to recover funds for the residuary beneficiaries of an estate and is worth bearing in mind when considering charitable residuary bequests where there have been substantial lifetime gifts to the same recipient after execution of the will.
Over the last month we have advised on whether the presumption against double portions can be used to secure sums from an estate that would otherwise go to the deceased’s daughter.
The doctrine is described as follows:
‘Where a parent leaves a substantial share of his estate in his will to [a child] and then gives a large inter vivos gift to [that child], and where both those gifts have the character of a portion, it is assumed, subject to evidence establishing the contrary, that the gift is supposed to be a substitute for the bequest.’ (Kloosman v Aylen ).
A portion is loosely defined as ‘a gift intended to set up a child in life or to make substantial provision for him or her’. The suggestion is that, by making the lifetime gift, the parent is, in effect, advancing the share that would otherwise pass under the residue, rather than making two gifts. It is a creative attempt to recover funds for the residuary beneficiaries of an estate and proof that these obscure legal doctrines can be useful.
The commorientes rule
The commorientes rule, which hit the press over the summer in the Estate of John William Scarle Deceased  EWHC 2224 (Ch) is another example of a rarely-used legal doctrine.
Its complicated name belies its simplicity. The rule, which is enacted at s184 of the Law of Property Act 1925, creates a presumption that, where two or more people have died in circumstances where it is uncertain who died first, the deaths are presumed to have occurred in the order of seniority so that the younger survived the elder.
In the very sad circumstances of this case, John and Marjorie Scarle were found dead at their home in October 2016. The post-mortem for each found the cause of death to be hypothermia but it was not clear who had died first. Mr Scarle’s daughter, Anna Winter, argued that Mrs Scarle died first, so that the entire estate passed to Mr Scarle and then to those entitled on Mr Scarle’s intestacy.
Mrs Scarle’s daughter, Deborah Cutler, argued that Ms Winter had not provided evidence sufficient to ascertain that Mrs Scarle had died first. She argued that the burden of proof was higher than the usual civil standard and rested somewhere between the civil standard (on the balance of probabilities) and the criminal standard (beyond reasonable doubt). As the evidence was not sufficient to ascertain Mrs Scarle’s earlier death, the presumption under s184 applies; Mr Scarle, as the older of the two, died first and therefore the estate passed to Mrs Scarle and then to those entitled under Mrs Scarle’s will.
The court did not agree that a higher standard of proof applies and confirmed the application of the civil standard. However, the judge found that the only evidence pointing unequivocally to the sequence of deaths was the relative difference in decomposition between the bodies. This was either due to the sequence of deaths, or due to differences in the micro-environments in which the two bodies were found (one in the toilet and one in the lounge).
The judge found he could not discount that the differing states of decomposition of the bodies was due to the differing micro-environments in which they were found. As such, the sequence of death remained uncertain, and the presumption under s184 applied. Mr Scarle, as the older of the two, died first and therefore the estate passed to Mrs Scarle and then to those entitled under her will.
The purpose of legal doctrines such as the above are to avoid legal injustice or uncertainty. Legacy officers should be aware of their existence so that they can ensure that charities do not lose out on recovery of charitable bequests.
Claiming a refund from HMRC on shares sold at a loss
We are all aware of the difficulties arising for legacy officers and for charities as a result of the delays in issuing grants. An area of particular concern is where charities benefit from estates that have heavy share portfolio losses.
As we all know, inheritance tax (IHT) will initially be paid on the basis of date of death figures, but if those shares are subsequently sold at a loss, IHT relief is available. However, in order to qualify for relief, the qualifying investments need to be sold within 12 months of the date of death.
It can be difficult to meet this deadline in a complex estate or where there is a dispute. A 6-12 week delay in the grant issuing will make this even more difficult. It is therefore essential to bear in mind the time limit to sell the shares where shares are held in certificated form and to try to ensure that the 12 month deadline is met if at all possible. However, we are aware that where shares are held in a share portfolio, managed through a stockbroker, some brokers have agreed to sell the shares pending extraction of the grant and the sale proceeds are released once the grant has issued.
We have put this forward for the ILM survey on losses occasioned by delayed grants, but thought it worth also bringing to the attention of legacy officers.
Payment of pecuniary legacies after the executors' year
The delays we are currently experiencing in extracting grants at the probate registries are likely to have a knock-on effect on how quickly executors are able to satisfy the pecuniary legacies left in a testator’s will.
With that in mind, below is a reminder of the rules that apply to the payment of pecuniary legacies made after the end of the executors’ year. The common law position is that an executor has 12 months from the date of death of the testator to call in the assets of the estate, pay the debts and liabilities and distribute the estate to the beneficiaries, in accordance with the testator’s will. Under section 44, Administration of Estates Act 1925, the executors do not have to distribute the estate before the first anniversary of the death. The period of time between the testator’s date of death and distribution of the estate is known as the ‘executors’ year’.
If the executors take longer than the executors’ year to distribute the estate, provided there is no contrary intention in a will, there are rules to ensure that interest is paid in addition to the pecuniary legacy due to the beneficiaries. However, different rules apply on specific legacies (a gift of a specific asset eg a share portfolio) and demonstrative legacies (a gift to be paid from a designated fund eg funds from a particular bank account). It is also essential to note that the payment is only due on a vested gift (outright gift due to the beneficiary immediately after the testator’s death) and does not include any gifts with a contingency, for example, where the beneficiary has to reach the age of 18 before receiving the gift. However, there are some exceptions to those rules in particular circumstances.
In order to ascertain the rate of interest payable on a pecuniary legacy it is necessary to check the rates with the Court Funds Office as the rates do change. As from 6 June 2016 the rate payable is 0.1%.
The importance of ensuring the correct definition of a testator’s chosen charity in a will
It is not always possible for a charity to control the way it is described in a will. However, to the extent that a charity does have any influence or input at the will drafting stage, clarity is key and it is worthwhile reminding oneself of the potential pitfalls and the key points to bear in mind for solicitor draftsmen.
If a charity is not correctly defined in a will, the charity that the testator wished to benefit may miss out on all or part of the bequest. Ultimately, the legacy could be split between various charities, with similar objects, as decided by the court. Having to involve the court is a costly exercise and one which should be avoided by careful consideration by the testator and will draftsman.
To minimise the risks of an incorrect definition of a charity at the will drafting stage, the will draftsman should be given the charity’s name and charity number. In addition, where a national charity has a local branch, it is essential to take instructions from the testator as to whether the gift should pass to the national charity to use as it sees fit or to the local branch. Draftsmen should be reminded that the local branch may have a different charity number.
Where a testator wants to specify that a particular project within the proposed charity is to benefit from the charitable bequest, the will draftsman should be reminded to check the viability of the project. It is preferable that a benefit to a specific project be stated as a wish, so that funds can be applied elsewhere if, by the time of death, the specified work is no longer carried out.
These points are worth bearing in mind where charities have a line of communication with will draftsmen and can offer guidance and support in making sure that charitable legacies reach their intended recipients.