Charities and solicitors - a symbiotic relationship?

My firm has a deep involvement in working with charities and has recently been sounding out charity professionals, through work with the Institute of Legacy Management, about their views on the critical relationship between charities and the legal profession. That debate has informed this article, in which I enter (with some trepidation!) into the difficult question of the role of the legal profession, first when advising clients on the inclusion of charitable gifts in their Wills and then when administering an estate involving a gift to charity.

The background

The charity sector is experiencing a difficult time. The economic climate, and increased competition between charitable causes, means that charities are having to work harder than ever to maintain their legacy income. As lawyers, our profession clearly has a key role in advising clients about making gifts to charities in their wills, and deals on a day to day basis with estates involving charity beneficiaries. The relationship between charities and legal professionals is therefore extremely important. But why is this the case, and what can be done to build a stronger relationship?

Three quarters of people in the UK support a charity during their lifetime, whether it be through donations or volunteering, but only 7% of people currently leave charitable gifts in their wills. A recent economic survey published by the Charity Commission highlighted the fact that nearly a quarter of charities receiving legacy income experienced a decline in this income over the previous 12 months, with nearly a fifth expecting a decrease in their legacy income.

There are numerous reasons why people do not leave money to charity in their wills. With almost two thirds of the adult population not having a will this is a significant barrier to legacy giving. The economic climate is also clearly having an impact, bringing financial matters to the forefront of people’s minds. Concerns about having to pay for long term care, the need to provide financial support to younger generations and the fear of having inadequate pension provision all mean that people believe that their assets will be significantly reduced by the time of their death. The common perception therefore is that there will not be enough money left to go around if provision is made for both family/friends and charity. As a result, very often, a gift to charity will not be included in a will.

Recent bad publicity for charities

Charities are not only having to fight against the economic climate but they are also having to fight against the public’s and media’s perception of them. Headlines in recent years such as ‘RSPCA's court attempt to double £300,000 left in will of animal lover slammed by judge as 'patently wrong' and ‘Daughter defeats RSPCA ‘townies’ after inheritance battle over £2m farm’ and other reports of the high profile cases of RSPCA v Sharp and Gill v RSPCA combine to paint a picture of charities as being grasping and unsympathetic. Cases involving charities are often reported as ‘David and Goliath’ cases, where large charities are portrayed as wasting their supporters’ money by bringing legal cases in an attempt to take what “rightfully” belongs to an innocent family member.

Fair and balanced reports of cases do not sell newspapers and, therefore, it is concerning that the popular media resorts to sensational headlines in order to attract attention. Sadly, this inevitably results in members of the public (and maybe even some lawyers!) being encouraged to always view charities as the villain of the piece. Although it is impossible to quantify, such public perception will inevitably have a damaging effect on legacy income, as we have all heard or seen comments about people reconsidering gifts to charities as a result of detrimental media coverage. And it is not only those charities that are in the headlines that suffer as a result.

As well as public reaction to the recent high profile legacy cases, there seems to be growing discontent about the way in which certain charities raise awareness of their cause and try to obtain supporters. We have all heard stories about local businesses claiming that they have lost business due to ‘Chuggers’ operating on their doorstep, or the client who wishes to remove a charity from their will because of the amount of correspondence and ‘begging letters’ they receive. Charities are therefore having to tread a fine line between trying to gain more support and offending existing supporters.

A recent article in the Daily Mail entitled ‘The animal charities going to war with grieving families to grab their inheritance’ also highlights the worrying view that charities should just sit back and be thankful for what they receive. There seems also the perception that charities are easy targets as they will want to settle a claim to avoid any bad publicity. Sadly, there appears to be anecdotal evidence that these views have contributed to more claims being made against legacies left to charity.

Society changes

We are also living in an increasingly litigious society and therefore, even when a charity has been successful in securing a gift from a supporter in their Will, there is no guarantee that this gift will not be challenged. It is estimated that the number of wills challenged by families disputing the amount left to charity has trebled in recent years. People now seem to be less daunted by the prospect of challenging a Will than used to be the case, and, with historic rises in house prices, estates are often larger, meaning that there is more ‘up for grabs’. On the flip side, the fact that people are living longer means that they are having to fund lengthier retirements and potentially pay for long term care. Also, the fact that many parents and grandparents are providing financial support to younger generations in the form of school and university fees and house deposits means that often people have less at their death than anticipated. As a result, some families feel ‘short-changed’ when they learn that an already diminished estate will be shared between them and charity beneficiaries.

In addition, many people nowadays live alone, and the chance of living on your own of course increases with age. For a number of reasons, extended families are not as close as they were, with the result that many people feel they have no close family and therefore consider leaving their estates to charity, rather than to distant family members.

The role of the legal profession

At this point you may be thinking, this is all well and good but what has any of this got to do with us in the legal profession? The charities with which my firm has consulted consider that, as a profession, we have a responsibility to our individual clients to help ensure that their testamentary wishes are carried out and to seek to avoid creating situations which can lead to legacy disputes.

As a profession, we are of course often the first port of call when someone wants to make a will leaving a gift to charity and, as part of our advice, we are therefore responsible for ensuring that the client is aware of the pros and cons of leaving a pecuniary legacy or a share of residue to charity. We therefore play a significant role in making sure that people make a fully informed decision when leaving a gift to charity in their wills.

Often disputes can arise because the value of a testator’s estate has changed significantly in value since they made their Will. In some cases, a testator may have left a legacy to charity believing that the bulk of their estate would pass to their family. If the value of the testator’s estate then reduces, it can result in the family receiving significantly less than anticipated and potentially lead to a claim against the estate.

In order to potentially reduce the number of such claims, we therefore have to ensure that we provide complete and impartial advice at the time a person makes their Will. Some charities are concerned (and I share that concern) that there appears to be the opinion in some quarters of the legal profession that we should advise clients to only leave a pecuniary legacy to charity, and not a share of residue, in order to remove the charity’s right to ‘interfere’ in the administration of the estate. However, as legal professionals we are surely doing our clients a disservice if we let our own experiences of dealing with charities, and our opinions, cloud the advice that we provide. In many cases a pecuniary legacy to charity will be the right option for a client but, there are circumstances where sharing the residue between the client’s family and charity may be a better option and we must always ensure that clients are made fully aware of all of the options.

Can the risk of Inheritance Act claims be reduced?

When advising clients, the charities we consulted also recognised that lawyers need to be on their guard for situations where a client expresses a wish to leave money to charity, when in fairness it ought to be left to family members. This is where the role of a trusted advisor is particularly important. Every person has freedom of testamentary disposition and, if they wish to leave all of their money to charity rather than to their family, they must be able to do so and our task is to put their wishes into effect. Hand in hand with this our job is also to ensure the client makes an informed decision and understands the risks he or she is taking. The number of claims against estates that have been left to charity is on the increase and people appear to be more inclined to challenge a will where charities are involved. We need therefore to be on the alert for situations where a Will we prepare could potentially be open to challenge under the Inheritance (Provision for Family and Dependents) Act 1975 (IPFDA).

Previously, it was thought that a claim by an adult child against an estate would only be successful under IPFDA 1975 if it could be established that the testator had some kind of ‘moral obligation’ to make provision for that child, for example if the child was reliant on the testator for financial support. However, the case of Ilott v Mitson, shows that the judiciary is moving away from this approach and highlights that each individual case turns on its facts.

As a profession there is of course ultimately nothing we can do to prevent a claim being made against an estate. As many of us will have experienced, a determined claimant will make a claim, no matter how objectively futile or slim the chances of success. However, we (and the charities we have consulted) consider that, as legal professionals, we can ensure that we do everything we can when advising our clients in order to reduce the risk of any such claim being successful.

We should therefore ensure that, when a client makes a Will which makes little or no provision for their children, or other potential claimants under IPFDA 1975, the client is made aware of the risk of a claim against the estate. To try to avoid such a claim, the client could then be advised to consider making ‘reasonable’ provision for the person concerned, so that, even if a claim is made, the court will decide that full provision has already been made for that person. However, it is extremely difficult to say when the Will is prepared what exactly a judge would deem to be ‘reasonable’ provision. As a result, even if provision is made, it could be the case that this would not be deemed to be ‘reasonable’. Also, in my experience, in the majority of cases, and for a wide variety of reasons, a client will be adamant that they do not want to leave any money to the person in question. It is for these reasons that, in all cases where a client is leaving money to charity and there is the risk of a claim, we must advise the client to prepare a detailed letter of wishes to leave with their will.

In Ilott v Mitson, the testatrix did leave a detailed letter of wishes setting out why she had not made any provision for her daughter, but the court found that the contents of that letter was not a truthful and accurate account. Also, during her lifetime the testatrix had also shown little interest in the charities and causes to which she had left her estate and, as there appeared no rational reason for leaving the money to those charities, the court felt that the only fair inference was that the gifts had been made out of spite. This case therefore highlights that, when we advise clients to make a letter of wishes, not only should the letter set out the reasons why the client has not included or has only left a limited amount to certain relatives, it should also explain why the client has chosen the particular charity and what relationship they have had with the charity or its cause, if any, during their lifetime. In this way, not only can we make sure that everything possible has been done to record our client’s reasoning and wishes to enable them to be fulfilled but we should also help to reduce the number of claims against estates.

The role of the charities

Of course, charities also have a vital role to play in this area. One key factor in reducing the number of claims is making sure that people seek advice from a suitably qualified legal professional when making their will. Charities can assist greatly by encouraging their supporters to use a solicitor when making their wills, and my experience is that this is what they generally do. Although charities perhaps would not like to labour the point through fear of discouraging supporters from leaving a legacy, they could also consider making supporters aware that claims can potentially be brought against an estate and make it clear what can be done to make a claim less likely. As part of their legacy marketing, charities could also forge links with legal professionals, so that they can ensure that their supporters receive the best advice when making a will.

Legacy 10

As well as being in a position to potentially help reduce the number of successful claims made against charitable estates, the legal profession is of course in an ideal position to promote the ‘Legacy10’ campaign. The Finance Act 2012 introduced a reduction in the rate of inheritance tax from 40% to 36% where that person has left 10% of their net estate to a qualifying charity. In November 2011 the ‘Legacy10’ campaign was launched to encourage charitable giving in the UK. In particular, the campaign highlights the fact that, for those people whose estates will be subject to inheritance tax and already plan to leave a gift to charity, the new rules mean that non-exempt beneficiaries of an estate will receive the same amount regardless of whether the testator leaves 4% or 10% of their net estate to charity. As a profession, this is a campaign that we can support and should discuss charitable giving with our clients. Although the reduced inheritance tax rate may not provide significant savings for your ‘average’ client, clients should be made aware that the reduced rate does mean that, if the calculations are done carefully, they can leave a little more to charity without their families suffering the consequences.

The administration of estates

Not only can we assist charities through our will-writing role, but we also have an important role to play when dealing with the administration of estates. Through will- writing we can help charities indirectly, but when dealing with an estate where there is a charity beneficiary, our actions will have a direct impact on the charity. Some legal professionals may have had difficult experiences of dealing with legacy officers and this can lead to bad feeling. But as professionals we must ensure that we do not let such experiences taint our view of legacy officers and their charities as a whole, as this can damage the relationship that the legal profession has with charities.

The role of a legacy officer should no longer be to simply ‘thank and bank’. A legacy officer has a duty on behalf of the charity’s trustees to ensure that an estate is administered correctly and that the charity receives the correct amount due to it. Where a share of residue is involved, part of the legacy officer’s role is to ensure that the best value is achieved for assets in the estate. One common complaint is that legacy officers constantly demand further information and updates from solicitors which only results in increased costs. However, as a profession we should remember that the legacy officer has a job to do and that, as with any other residuary beneficiary, charities are entitled to receive full details about the estate.

We must also remember that, whether or not we are acting as professional executors, we have a duty to consider the tax and other implications of dealing with an estate in a particular way. As charities are exempt from IHT and CGT, we therefore need to keep this at the forefront of our minds when dealing with charitable estates. Charities and their legacy officers can, however, provide some help in this respect by providing, at an early stage, details of the information they will require about the estate and also providing details of any special requirements they have.

If both legal professionals and legacy officers can gain a better understanding of the requirements and pressures placed upon each other when dealing with estates, the way in which estates are administered can be improved benefiting all concerned. The only way to achieve this is to have open communication between legal professionals and legacy officers.

Conclusion

There are no right answers in this area, but I hope that I have demonstrated the importance of the relationship between the legal profession and charities – each side of this relationship can do much to help the other.