Protecting legacy income for charities: a toolkit for claims

Reported legacy income is said to have reached £3.5bn last year, with total legacy income estimated to have risen to around £3.9bn, the largest ever reported. This represents a 1.9% increase on the previous year. Alongside this, the value of charitable estates also rose from £21.4bn in 2022 to £22.6bn in 2023, showing a 7% growth.

This growth in deceased persons’ estate values translates into corresponding growth in the values of residual bequests in Wills to charities and so the importance of legacy income protection for charities has perhaps never been greater.

However, despite these improved statistics in respect of legacy income, it is also true to say that claims against deceased persons’ estates are also on the rise and so many charities in the coming months will need to consider the right strategy to adopt when defending such claims and considering what is in the best interests of their charity.

Claims that threaten legacy income

Claims disputing the validity of Wills, claims for rectification of Wills and claims pursuant to the Inheritance (Provision for Family and Dependants) Act 1975, where a claimant seeks better provision than the Will provides, can all give rise to the possibility that the legacy to the testator’s nominated charity will be eroded or perhaps even wiped out completely.

Claims relating to the validity of Wills are “all or nothing claims”; either the Will is valid or it is not and the charitable legacy will stand or fall accordingly. Claims for rectification of Wills often arise out of negligent drafting where a common argument is that the testator did not intend to benefit a charity either in full or in part. Claims under the 1975 Act will assert that all or part of a charitable legacy should be made available to satisfy the claim for reasonable financial provision.

In estates where these claims are brought forward, the Trustees of the charity must balance their duties to ensure the charity receives the assets intended for it against the time, resources and costs that the charity officers will incur in litigating to protect the legacy. Many charities are concerned about adverse publicity that litigation can
generate. Most charities will wish to avoid the perception that their stance in relation to the claim has caused the case to go to
trial.

It can be a very difficult balancing act for charity trustees as they navigate how to ensure that the costs incurred in relation to the claim are a good and proper use of charitable funds. So what is the correct approach?

5 things to consider before defending a claim

Charities whose legacies are vulnerable as a result of a dispute arising in a deceased person’s estate should consider various factors when deciding whether defending a claim is the correct course of action. At an early stage in the claim, following service of the proceedings, the charity will be asked to elect whether it will actively defend the claim or whether it will not do so and will simply allow the claimant and other defendants to fight it out or settle the matter through an Alternative Dispute Resolution procedure, such as mediation.

The decision whether to actively defend or not needs to be taken quite quickly, as the time limits for indicating this and also preparing the charities’ evidence in response are short and usually not longer than 21 days. Acting swiftly to take legal advice is key and consideration of the following factors will be important:

1. What is the value of the legacy?

How much is at stake is likely to be a primary consideration. Trustees should be advised to conduct an early cost/benefit analysis of the likelihood the legacy could be returned to the charity in full, if the claim which threatens it is entirely unsuccessful, against the costs, time and resources that would be incurred in defending the claim.

2. Gather all available evidence

If the charity has any evidence of a personal connection, this should be preserved and collated. The court is less likely to make an order disrupting the legacy if there is a long history of close association or a good reason why the charity was chosen as a beneficiary.

3.Be prepared to summarise the charity’s position in a witness statement

The charity’s evidence as to why the legacy income is of value to it and what projects it would assist will be relevant information for the Court and for
negotiations. Team up with other charities to share the costs and burden Often there will be several charities affected by the claim against the estate. Electing a “Lead Beneficiary”
to coordinate all charities’ response (where the charities’ interests are broadly aligned) will minimise costs and
streamline the process.

4. Agree to mediate wherever possible

Mediation generally has a high success rate and can often be arranged at short notice. It is a cost-effective alternative to costly court proceedings. Mediation is likely to secure only a proportion of the legacy, but the costs of mediation are significantly lower than the costs of going to trial. Trustees have a duty to consider ways in which the case might be settled and they must not unreasonably refuse mediation. The trend is now towards the Court being able to compel parties to mediate and there is rarely a good reason to refuse mediation in the Court’s eyes.

5. Consider funding options

There are a range of litigation funding products available these days for meritorious defences to claims that could be explored if the charity has insufficient resources to be able to fund legal costs. If the legacy is significant enough, it is not an option for the trustees to take no steps to protect it. Document the trustees’ decision The trustees should record their
reasons for deciding to defend or not defend the claim for their own protection in case they are asked to justify
their decision.

What does the Charity Commission expect?

The Charity Commission guidance in this area is clear: Trustees have a duty to act in the best interests of their charity which means there is a duty to protect the assets belonging to it or intended for it. All the above considerations must be carefully balanced to ensure the charity’s assets (including its reputation) are preserved in
pursuit of the charity’s objects. The Charity Commission expects trustees to consider legal action only after they have explored and ruled out other ways of resolving the issue in dispute, such as mediation. Often, charities will have no choice and will be joined as unwitting defendants to claims. If that situation arises, charities should not be afraid to assert their rights to legacies.

A decision to actively defend does not necessarily carry with it adverse cost consequences for a charity, providing the charity acts reasonably in its defence. The Civil Procedure Rules, which govern litigation in England and Wales, allow the charity to take a diplomatic approach to help to avoid any perception that the charity has forced the matter to go to court. A charity is usually best advised to file a neutral defence asserting the intentions of the testator in relation to the legacy and then to propose mediation at an early stage. This strategy will limit costs and, if successful, achieve a negotiated solution and ensure maximum recovery of the charity’s costs from the estate.