On 17 November 2022, the chancellor announced that Britain is in recession. As living standards drop and purse strings tighten, charities must ensure they continue to provide to those in need more than ever.
Legacy income is a crucial source of support for charities and is set to reach £4bn in 2022.
What should charity trustees do when faced with a dispute over a legacy? Cost, reputation and risk arise, all in the context of the duty to safeguard and collect in charitable assets for the benefit of their charity’s purposes (ie, their beneficiaries and causes). A tricky balancing act is therefore required, and this brief note will provide a refresher on the considerations when walking the legacy dispute tight rope.
- Charitable trustees will be aware of their legal duty to protect and recover their charity’s assets. This duty naturally extends to defending or pursuing claims to legacies (as it does to recovering debts).
- But these duties are tempered in reality by other concerns, which must be considered as they potentially impact upon a charity’s ability to raise funds more generally.
- Charities are acutely aware that legacy disputes are easy pickings for the media - think RSCPA V Sharp and Gill v Woodall and Illott v Blue Cross. These cases can be presented by the press as examples of charities overeagerly engaging in litigation and wasting charitable funds on disputes against bereaved family members.
- Likewise, charities are, rightly, highly sensitive to the far-reaching consequences of a public backlash. Prospective donors may be put off from donating if they think their funds will line a lawyers’ pockets.
Factors to consider
As with all litigants, charities must undertake a costs-benefit analysis in deciding whether to pursue litigation. There may be little choice – a trustee cannot simply stand by and allow a valuable legacy to be eroded by an unscrupulous opportunist. However, litigation costs and their recoverability, merits of the claim and time commitment are all relevant considerations.
Merits of the claim
Trustees should consider the merits of the claim and the parties in question. A distinction may be able to be drawn between defending a speculative attack on a charitable legacy from a distant relative and pursuing a claim to the detriment of impoverished next of kin. Whilst the charity of course has a duty to pursue assets to which it is legally entitled, if the reputational impact is such that the charity’s future fundraising efforts will be damaged by a vigorous pursuit, early compromise may be justifiable and indeed advisable.
Does the value of the legacy justify the litigation costs? Allowing a substantial loss to occur (ie, through litigation costs) could constitute a breach of trust in certain cases.
How will pursuing the litigation distract charity employees from their work, and is the change in focus of benefit to the charity?
A small risk, but a risk nonetheless - if the court considers costs to have been unreasonably incurred, trustees run the risk of being personally liable for costs.
Approach to be taken
No one should embark on litigation lightly, least of all charities. Before doing so, charities should ensure that they:
- Receive expert legal advice on the merits of the claim.
- Where resources allow, supplement this with specialised advice from a reputation management team.
- Weigh up the merits and potential value against costs and reputational risk.
- Document decisions thoroughly to ensure trustees can prove they considered relevant factors carefully before coming to a decision to litigate.
- Consider ADR. The private nature of mediation and negotiations coupled with the costs-savings offer particular benefit to charities. Courts are less likely to seek to impose personal liability on trustees where they can offer evidence of attempts to settle, and compliance with the procedural framework.
Finally, prevention is usually better than cure – when helping donors to provide legacies, ensure that correspondence with the testator and proof of this relationship with them is gathered, to guard against later challenges to the will. And take early advice!
With special thanks to Méabh Kirby, a current trainee in the team, for their contribution to this article.
If you require further information about anything covered in this briefing, please contact Joseph de Lacey or your usual contact at the firm on +44 (0)20 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, November 2022
 Legacy income
  UKSC 17