Contested legacies: a changing landscape

The Supreme Court judgment has particular implications for charities who can find themselves caught up in hostile family litigation. This briefing considers what impact the judgment is likely to have for charity defendants and the practical steps which charities can and should take when confronted with challenges to legacies made to them.

The Background

Mrs Jackson died at the age of 70 and left the majority of her estate worth £486,000 to three animal welfare charities (the RSPCA, the RSPB and the Blue Cross). Mrs Jackson’s daughter, Mrs Ilott, had been estranged from her mother since the age of 17, when she ran away with Mr Ilott, whom she subsequently married. Mrs Ilott was in her 50s when her mother died in 2004 and was fully aware that she was unlikely to inherit anything from her mother’s estate.

Mrs Jackson executed a Will in 2002, excluding her daughter from her estate. She also left a Letter of Wishes explaining her reasons for disinheriting her daughter and instructing her Executors to fight any challenge to the terms of her Will.

Following Mrs Jackson’s death, her daughter brought a claim challenging her mother’s Will under the 1975 Act. The 1975 Act enables certain categories of applicants (including spouses, children of any age, and dependants) to bring claims against an estate where they assert that reasonable financial provision has not been made for them under a Will.

At trial (in 2007) Mrs Ilott was awarded £50,000 (approximately 10 percent of the estate) on the basis that reasonable financial provision had not been made for her. Both parties appealed. The Court of Appeal agreed with the High Court Judge and awarded Mrs Ilott £163,000 plus reasonable expenses. The Court of Appeal made these findings on the basis that Mrs Ilott was of limited means and reliant on state benefits. She also had no pension provision and was likely to struggle to make ends meet in future. This was enough to persuade the Court effectively to rewrite Mrs Jackson’s Will and significantly reduce the gifts made to the charities in question.

The charities appealed this decision on the grounds of public policy and, thirteen years after Mrs Jackson's death, the Supreme Court has allowed the charities' appeal and reinstated the original award of £50,000 to Mrs Ilott.

The Supreme Court Judgment

The Supreme Court held that, whilst the charities in question did not have a particular connection with Mrs Jackson, and therefore had no expectation that they would benefit from her Estate, the charities depended heavily on testamentary bequests for their work (as many large charities do). They did therefore to some extent have a need of their own. The charities also carried out work "for the public benefit" and the Supreme Court Judges clearly regarded this as important.

Before the Supreme Court judgment in this case, the Courts did not regard charities as having special status under the 1975 Act. For this reason charities have often taken a neutral or passive role in litigation or settled at an early stage. That is now likely to change as this judgment at least appears to suggest that, for public policy reasons, charities may have special claims as a result of their charitable status.

What does this mean for charities who are residual beneficiaries?

Whilst the Supreme Court judgment has greatly improved the position of charities involved in 1975 Act proceedings, there are a few factors for charities to bear in mind before deciding whether to engage in litigation:

1. It may no longer be appropriate simply to be a passive defendant (subject, of course, to Charity Commission guidance). It's likely that the status of charities – in particular whether or not a particular charity is dependent on legacy income – will be raised by Claimants to advance their claims and charities will need to be prepared to defend their position. The need to do so may be greater for smaller charities who are not necessarily dependent on legacies as a major source of income.
2. There are perhaps greater reputational dangers for charities engaging in litigation, particularly if public policy issues are debated in respect of one particular charity. Charities may find themselves being drawn into debating these issues.
3. Given the greater focus on the importance of testamentary wishes, charities would be well advised to take steps to engage and build good relations with their known potential benefactors. These steps and any related correspondence should be well documented and, in particular, should reflect any particular projects which the charity and the testator have in mind for the funds in question.

Conclusion

The Supreme Court judgment in this case raises as many questions as it answers and each case will continue to turn on its own facts. On the one hand, the Supreme Court suggests that charitable defendants will be able successfully to defend 1975 Act claims but the judgment also makes it clear that there are a range of possible (and acceptable) outcomes. As a result, appeals are much less likely in future 1975 Act claims. The parties may only have one shot at getting the right outcome and it is important that trustees are well prepared and well aware of the options available to them before deciding whether it will be in the best interests of their charity to engage in litigation. Charities would therefore be well advised to seek legal advice at an early stage.

If you require further information on anything covered in this briefing please contact Charlotte Fraser([email protected]) or Joanna Poole ([email protected]) or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2017