Seeing both sides

  • Author : Jonathan Burchfield
  • Date : June 2010
ABOUT THE AUTHOR: Jonathan Burchfield is a Charity Partner at Stone King Sewell LLP and Head of its legacy team

There seems to be a current view that some charities have become unduly aggressive where they have been left all or part of the residue of an estate, with the result that some solicitors may now be advising clients only to leave charities specific gifts, rather than a share of residuary estates. This article considers this suggestion in the light of three recently reported charity legacy cases (all coincidentally involving the Royal Society for the Prevention of Cruelty to Animals (RSPCA)) and puts the alternative view – that charities are simply fulfilling their duties and that estate practitioners should certainly not encourage clients in the way suggested.

The Gill case – undue influence and proprietory estoppel1

This highly publicised case involved a claim brought by Dr Christine Gill in respect of her mother’s estate. Her parents had made wills in 1993 in which they left their estates to each other and, on the second death, to the RSPCA. Mr Gill died in 1999 and Mrs Gill died in 2006, leaving her entire estate to the RSPCA.

Dr Gill brought a claim on two main grounds:

  • Firstly, that at the time that her mother made her will she did not know and approve its contents. However, the Court concluded that the evidence produced was sufficient to establish that Mrs Gill did know and approve the contents of her will at the time of its making, and therefore this element of her claim failed.
  • Secondly, that her mother had completed the will as a result of coercion exerted by her father, which represented undue influence. The Court concluded that Mrs Gill had been coerced into making her will by Mr Gill. As a result, Dr Gill succeeded on this second ground, and the Court ordered the will to be set aside.

The Court also considered an alternative claim on the principle of proprietory estoppel. This claim was based on assurances given by Mrs Gill to her daughter during her lifetime that the farm and the business would one day be hers, the reliance placed on these assurances by Dr Gill, and the detriment she suffered as a consequence. The Court concluded that Dr Gill would have also been successful on this ground, with the result that the farm and the business would have passed to her in any event, even if the Court had ruled against her on the first two elements of her claim.

The case itself was clearly complex and unusual, and is now the subject of an appeal by the charity. To any layman, it must seem contradictory that the Court held that Mrs Gill did know and approve the contents of her will and yet, at the same time, held that she had been coerced into writing it. To the lawyer, it is unusual to see that a defendant charity has succeeded in discharging the onus put on it of proving knowledge and approval, but that a claimant has succeeded in discharging the heavy burden of proving coercion. This was, therefore, the sort of difficult case that sometimes, at the end of the day, needs to be settled in Court.

The Mitson case – testamentary freedom2

This case centred around the will of a mother and her only daughter. The mother did not leave anything in her will to her daughter but left her substantial estate to three animal charities (including the RSPCA), despite having shown no sign of supporting the charities during her lifetime. She left a letter of wishes explaining her reasons for choosing not to benefit her daughter, basing this on their disagreements and effective separation over 20 years before her death.

A claim was brought by the daughter under the Inheritance (Provision for Family and Dependants) Act 1975, which succeeded at first instance. However, on appeal (ironically brought by the daughter, disputing the amount initially awarded to her), Mrs Justice King held that the Judge had wrongly interpreted the law and set aside the claim. She held that the Judge had simply asked himself whether the deceased had been unreasonable, but should have looked objectively at whether her decision to exclude her daughter produced an unreasonable result. Mrs Justice King did express sympathy for the daughter but ruled that ‘to conclude otherwise would be to undermine the basic premise that in the UK a citizen can leave his estate where he pleases.’

The Mason case – the burden of inheritance tax3

The third case concerns the late George Mason, who in his will made a free of tax gift of his house to his friends Norman and Patricia Sharp. He also left the Sharps, together with his brother John, a cash gift, which he directed should be calculated to be ‘the maximum which I can give to them by this my will without inheritance tax becoming payable in respect of this gift.’ He then left the RSPCA the rest of his GBP1 million estate.

The applicable IHT threshold was GBP300,000 and, on one interpretation of the will, a liability of GBP112,000 would be due and payable out of the RSPCA’s residue, which would therefore amount to approximately GBP370,000. On an alternative interpretation of the will, which the charity asked the Court to consider, the share passing to the charity would increase by approximately GBP280,000, the IHT would reduce to nil, and the gifts to the Sharps and John Mason would reduce by GBP170,000 or so.

Mr Justice Peter Smith did not agree with the interpretation which would have favoured the charity and also awarded costs against it. Significantly, and (in this writer’s personal view) very questionably given a will the effect of which seems to have been clearly open to different interpretations, he commented in his Judgment on 19 February that:

‘It is a matter of regret in my view that this action was ever brought…I know it is said that trustees of charitable organisations are required to maximise the return for their charity but I really do wonder whether the discharge of that duty required this action to be brought. In my view the RSPCA whatever the view as to the will ought really to have considered that the residuary legacy…was generous and ample provision out of this estate.’

Charities are very grateful for the legacies that are left to them, but they do have a duty to maximise their entitlements and to secure what is due to them
What do these cases tell us?

These cases are all very different but together they illustrate the very real difficulties faced by charities when they seek to establish their entitlements to legacies.

When this writer was first involved in advising charities on their legacies, now (frighteningly) over 20 years ago, his experience was that charities as a whole were not especially professional in their legacy collection and that a significant number of charities simply collected in what was sent to them by Executors, without any significant attempt to verify their entitlements. At the same time, there was a very strong feeling, often expressed by Executors, that charities should simply be grateful for what they received – a view that the Judge in the Mason case still seems to adhere to. The writer was all too used at the time to being asked to review cases where estate practitioners had not served charity beneficiaries well, in most cases due to a lack of understanding of the special tax rules and legal requirements which apply to charities.

Since then, charities have (necessarily) become much more professional in their approach, with well-trained and suitably qualified legacy officers whose task is to collect in and maximise their charities’ entitlements. The Institute of Legacy Management (established in 1999) has played a major role in ensuring that charities have a forum within which they can discuss common issues and problems.

The recent cases illustrate situations where the charities involved will have felt obliged to pursue matters. In particular, the Council of the RSPCA will undoubtedly have been acutely aware of the reputational risk for their charity (and indeed for charities generally) in allowing the cases to go to Court, but equally will have been very conscious of their duties towards their charitable objects and the risk of failing in those duties if they gave up the charity’s entitlement too readily. Charity trustees are therefore well and truly between a rock and a hard place in dealing with such claims.

Conclusion

Charities are very grateful for the legacies that are left to them, but they do have a duty to maximise their entitlements and to secure what is due to them. They would be failing in their duties to their charitable objects if they failed to check that IHT has been allocated correctly between chargeable and exempt beneficiaries. They need to be sure that capital gains tax (CGT) has not been incurred unnecessarily, that no unauthorised ex gratia payments have been made out of their entitlements and that tax deduction certificates are issued for them to reclaim tax where possible. They also need to check if they consider that unnecessarily high administrative costs have been incurred.

The professional estate practitioner should not be concerned at the prospect of dealing with the modern breed of professional charity legacy officers, but should look forward to working in partnership with them in order to secure the best result for all concerned.

Gill v Woodall, Lonsdale and RSPCA [2009] EWHC B34 (Ch)
H v D.R. Mitson and others [2009] EWHC 3114 (Fam)
RSPCA v N.J.Sharp and others [2010] EWHC 268 (Ch)

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