All content on this page is correct as of March 31, 2020
With the forecast that the coronavirus outbreak will significantly weaken the UK economy, this will inevitably impact legacy income. We have put together a list of some key issues for you to consider.
With the Government’s announcement on 27th March that property buyers and sellers should pause purchases until after the COVID-19 crisis passes, legacy income is also likely to slow down, with a significant extension in the time it will take to realise the value of estates. The housing market is effectively being frozen, with mortgage lenders being asked to extend mortgage offers by three months and people being urged not to move house at the present time.
While this may lead to a significant delay in the realisation of some legacies, it is also possible that some executors may look to transfer properties to charity beneficiaries rather than sell them and transfer the proceeds. If this is proposed, in addition to the usual due diligence on taking on new property, charities will also need to consider if any of the other temporary measures that the Government has introduced will apply to such property (for example in relation to tenanted property). There will inevitably be challenges in the legacies property market, but charities may want to consider taking on properties rather than have other valuable legacy income held up by the freeze in the property market.
The potential economic downturn is likely to have an impact on legacy income. Legacy income represents a significant stream of income for most charities and unfortunately it’s not immune to economic fluctuations.
The anticipated decrease in legacy income may be due in part to a reduction in the value of estates due to a freeze in property and investment markets. However, it’s also likely that we’ll see a spike in the number of wills being challenged.
During the 2008 recession and its aftermath, we saw an increase in the number of people challenging wills on the grounds of validity or by bringing a claim under the Inheritance (Provision for Family and Dependants) Act 1975. We also saw a rise in the number of requests charities received for ex gratia payments, some of which on further investigation were clearly speculative ‘try ons’ and not genuine requests that met the legal criteria. We even saw examples of disappointed family members simply asking charities to relinquish all or part of a legacy, on no stated legal grounds at all.
In short, when personal incomes are squeezed, challenges to legacies tend to increase, and in our view it is likely that we could see similar trends to those we saw in 2008.
Legacy income is vital to many charities, and in order to protect legacies left to your charity it is important to take legal advice at the earliest opportunity.
It’s likely that many of you will now be working remotely, perhaps scattered across the country, and this is likely to continue for weeks if not months. It will be more important than ever to ensure that you have the appropriate schemes of delegation in place from your charity’s trustees to allow legacy officers to make decisions. Any such delegations must comply with your charity’s governing document. Trustees should set out the scope of delegated authority in writing, as well as any financial thresholds that may apply. Trustees will of course remain legally responsible for all activities of the charity, even where that activity/decision was made by a staff member under delegated authority.
Watch out for a major exception – the general view is that a decision to make an ex gratia payment can only be made by the trustees, and this cannot be delegated to a legacy officer. This is particularly important to remember as we expect to see requests for ex gratia payments increase (see above).
It goes without saying that charities will want to be especially sensitive about legacy fundraising at the moment, particularly as regards elderly or otherwise vulnerable people. There are also practical issues to consider, and the Institute of Fundraising has produced guidance on this issue that you may find helpful.
That said, the current situation has (helpfully) brought the discussion about modernising the will making process back to the forefront, as estate planning during a pandemic raises some interesting issues about the practicalities of making a will. The current situation has highlighted the potential need for electronic will making to be introduced, or at least some other alternative such as permitting “holographic” wills (i.e. an unwitnessed handwritten will, which a number European jurisdictions accept), or extending the eligibility of those who can make privileged wills (i.e. a will not subject to the usual formalities – which are currently only available to those in active military service).
The Law Society and the Ministry of Justice are currently considering these issues, and we would welcome seeing some progress in this area.
You can find more information on our website including insight bulletins which offer some practical guidance and advice on a range of issues relating to the coronavirus here. Webinars are also available to view. We’d be very happy to speak with you about any of these issues, so please do not hesitate to get in touch.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of March 31, 2020.