Charity needs Clarity!

8 June, 2016

Gifts to charity in wills are commonplace, and with the recent change in tax law which allows gifts of 10% or more to qualify the remainder for a reduced rate of tax, they are likely to become more so. However it is also true that mistakes in the wording of such gifts are also commonplace. And that can lead to all sorts of trouble.

Imagine you are the Executor of a dear friend who, happy that his few and distant relatives had no interest in him, or his money, left everything to a small charitable cause close to his heart. “Goody” you think “this will be nice and straightforward, and it will be a pleasure to deal with the charity and see the impact this not insubstantial sum will have on their work.” You trot along to your local lawyer who smiles and agrees with your initial assessment, and then asks “Exactly what is “the Friends of the North Sea Trawlermen’s society”?”

“Well,” you reply “I’ve not been able to find a charity with exactly that name, but I’m guessing it supports widows and families of fishermen. That was what Michael wanted, so there shouldn’t be any problem. Should there?” A quick trawl of the internet and the Charity Commission website confirms there are a number of similarly named charities but none of the name Michael included in his will.

At this a troubled look crosses the lawyer’s face… and you know then that you are in for a long haul.

The first question is, are we looking at a failed charitable gift, i.e. where nothing will pass to Charity and everything will go to distant family on an intestacy? Fortunately, not necessarily.

If the Charity exists (and it is clear what the testator intended) but the organisation has been inaccurately described in the Will, you may be able to use your discretion to rescue the gift by paying out to the body it was clearly the deceased’s intention to benefit. Failing that, the gift may still be rescued using a Charity Commission Scheme.

To be eligible for a Scheme, it must first be shown that the Will created a valid charitable gift – this may be trickier than you think if the “Friends of the North Sea Trawlermen’s society” (however described) has never been recognised as a charity. You will need to show that the legacy was intended not so much as a gift for a specific charity but as a gift for charitable purposes. The view of your solicitor or even specialist counsel will help, but if that doesn’t convince the Charity Commission you will have to seek an (expensive) ruling from the court.

Assuming you are able to jump this first hurdle, you have either an existing Charity but no practical purpose, or a purpose but no Charity.

In our example, let’s assume the latter is true, the Charity does not exist and the purpose is “for the education of fishermen’s’ children at Skye University”. If this purpose can be carried out, the Scheme would apply the gift to an appropriate existing Charity able to fulfil the purpose. If, on the other hand, the Charity did exist but the purpose was not capable of being fulfilled because, for example, there was no University on the Isle of Skye, the Commission would likely allow the gift to pass to the original Charity without such conditions attached.

But what if neither the Charity nor the purpose exists? There is still hope! In that case, the Doctrine of Cy-Pres might apply. In essence, Cy-Pres allows a failed charitable gift to be redirected to an organisation with similar objects.

For the gift to qualify for Cy-Pres, the testator must have shown a ‘general’ rather than ‘specific’ charitable intention. That is to say, a broader desire to benefit “the public” (a ‘sufficiently numerous’ section of the community) rather than one very particular group of people – and provided it can be applied for purposes considered charitable (for example education, the arts or religion) the Charity Commission will redirect the gift to a charity that can best carry out the wishes of the testator.

Only if all of the above fails will the gift pass by intestacy. Intestacy provides a set list of relatives who will inherit – many of whom may indeed be people the testator was trying to exclude! Significantly, if there are no surviving family members, the estate will pass not “to Charity” as hoped but to the Crown.

“This all sounds very complicated. If I know what the testator meant by his Will and I have discretion, are all these steps really necessary?” you ask.

Well, that depends. Whilst you have some discretion concerning identifying the Charity, keep in mind that executors carry personal liability for their mistakes. Family members who would inherit under the intestacy rules could hold you accountable for wrongly distributing the estate to Charity. If the Charity was not minded to refund the gift, you would have to pay the family out of your own pocket. So contemplate the size of the legacy and the mind set of family members before exercising such discretion, remembering that the bigger the gift the greater the likelihood of a challenge.

You are now back in your lawyer’s office, a year down the line. The estate has been distributed and, thankfully, a Charity Commission Scheme was successful in fulfilling Michael’s wishes. You thank your lucky stars that you didn’t try to handle this on your own, and make a mental note to have your own will drawn up by a lawyer, for the sake of clarity.