Charity legacies, 1975 Act claims and the pandemic: a charity’s perspective

The latest figures show that the COVID-19 pandemic has had a significant financial impact on the charity sector with a loss of income from both mass participation events and the closure of high street charity shops. Unsurprisingly this has led to an increasing pressure on legacies, which make up a sizeable part of many charities’ income.

While recent studies suggest that the pandemic has had a positive effect on charitable intent, and that a greater proportion of the UK public intend to make a gift to charity in their Wills, it is also inevitable that we look set to see a rise in claims for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 from applicants who are facing similar financial pressures in the current economic climate.

So, what does this mean for charities? Should they defend a claim and try to hold on to the legacy made to them by the deceased or should they bow out at the first opportunity and wave goodbye to a valuable source of income?

Illot v The Blue Cross and others

Arguably the most famous 1975 Act case involving charities is the case of Illot v The Blue Cross and others which saw the Supreme Court grapple with a claim for provision from the estranged daughter of the deceased whose last Will left her entire estate to various charities.

The claim was partially successful, with the daughter receiving a modest sum from the estate by way of reasonable financial provision. However, despite the overall reduction in the sums passing to the charities, the judgment offered charities a glimmer of hope as it recognised that not only do “charities depend heavily on testamentary bequests for their work” but that they are “the chosen beneficiaries of the deceased”.

The Supreme Court went on to criticise the Court of Appeal, who had considered that the charity defendants had “no needs to plead” and so were “not prejudiced” by an increased award to the deceased’s daughter, making it clear that while that may be the “right outcome in a particular case”, the fact that an award under the 1975 Act “is at the expense of those whom the testator intended to benefit” must be addressed and given due consideration.

The Illot case highlighted the fact that the court will not simply ignore a charity defendant, but will make a value judgment in each case, considering the factors in section 3 of the 1975 Act and deciding who is the most in need from the estate. But, is that positive news for charities looking to defend a 1975 Act claim? Unfortunately not… or not completely…

How do the courts approach 1975 Act claims against charity beneficiaries?

The case law in this area shows us that the needs and resources of an applicant under the 1975 Act will be a magnetic factor when the court is considering how to exercise its discretion to make financial provision from an estate.

The court must consider the competing needs of all parties, including a charity beneficiary, before deciding whose need is greater, who the deceased had an obligation to provide for and who may have had an expectation to benefit from the estate. This is not a straightforward exercise and each case will be decided on its individual facts and after a carefully considered balancing exercise.

For a number of reasons, it is unusual for charities to pit their needs against those of an individual applicant in a 1975 Act claim. Perhaps the most obvious of those reasons is that, as an impersonal body, a charity will inevitably find it much harder to evidence and quantify a need for provision on behalf of its charitable objects or purposes when faced with competing evidence from a wife, child or other dependent who enjoyed a personal relationship with the deceased and who is suffering daily financial hardship as a result of their death.

The reality is that the courts have shown little inclination to favour the needs of a charity over those of an individual applicant even when the deceased has demonstrated a fixed intention to benefit that charity both in lifetime and after death. For example, in the case of Re Bunning [1984] Ch. 480, the court held that, notwithstanding a letter of wishes explaining why the deceased’s wife was not to inherit, and a body of correspondence between the deceased and the University of Cambridge in relation to the deceased’s wish to benefit the university for a very specific purpose, the needs of the deceased’s wife were paramount and provision should be made for her. The decision in this case shows that even where a real expectation of provision has been established by a charity, the competing needs of an individual are likely to take precedence.

Similarly, the Judge in the 1997 case of Re Abram [1997] B.P.I.R. 1 made a clear statement when he said, “charity is in my view something to which you give your money when you have provided sufficiently for your dependants and fulfilled your obligations”.

However, despite the trend of successful 1975 Act claims against charity defendants, a small ray of light can be found in the desire of the court to structure an award in a way that preserves some benefit for the charity, whether immediately or in the future.

Charity legacies and the pandemic

So, where does this actually leave a charity faced with defending a claim for provision in the wake of the pandemic?

The answer will, perhaps frustratingly so, be different for each case and for each charity. There are many factors to be taken into account by a charity when deciding how to proceed, including the possibility of the significant costs risk of unsuccessfully defending a claim, the publicity a reported case might attract, the actual needs of the party seeking provision from the estate, as well as the possibility, and potential benefits, of entering into without prejudice negotiations at an early stage.

For all of these reasons, and in the uncertain economic times in which we find ourselves, it is increasingly important for charities to seek professional advice at an early stage if faced with a claim under the 1975 Act.

Our Contentious Trusts and Probate Team have a wealth of experience in advising charities and dealing with 1975 Act claims and we can help to guide you and offer advice on the best way to achieve a positive outcome for your charity. If you have any questions relating to a claim of your own, please contact Kate Harris, or another member of the team.