With charity income under increasing pressure, legacy income is a consistently reliable source, helping charities maintain stability through these challenging times.
We recently hosted our annual Charity Legacy Conference for legacy professionals, this year focusing on how to maximise and protect legacy income. Here are some of the key legal and practical takeaways from the event.
Wishes, restrictions and future-proofing legacy gifts
The difference between a restriction and an expression of wish can have a significant impact on how effectively a gift can be used. A restricted gift is legally binding and must be used in the way set out by the testator. An expression of wish is different. Trustees must consider the donor’s wishes, but they retain discretion to decide how the gift should be used in the charity’s best interests.
It is important not to assume that every reference to a particular project, activity or outcome creates a binding restriction. The starting point is always the wording of the will itself, read as a whole. The views of executors, family members or others may provide context, but they cannot override the language used by the testator.
Where a genuine restriction exists, your charity may still have options. The statutory powers in the Charities Act 2011 can, in appropriate circumstances, be used to amend restrictions, update purposes or unlock permanent endowment that no longer serves the purpose for which it was originally established.
Key takeaways
If your charity is reviewing its legacy fundraising materials, consider whether flexible wording could achieve a donor’s aims without creating unnecessary restrictions. Small changes at the point a gift is made can give trustees significantly more flexibility in the future. If trustees decide to follow a donor’s wishes, a designated fund may provide a practical alternative to treating the gift as permanently restricted. It is also worth reviewing older restricted funds periodically to ensure they remain fit for purpose and considering whether statutory powers could help unlock value that would otherwise remain tied up. Read our guide on understanding and unlocking restricted legacies to explore this topic further.
Ex gratia requests: increased flexibility means increased responsibility
Recent changes introduced by the Charities Act 2022 mean charities can now make small ex gratia payments without obtaining Charity Commission consent. While this removes some administrative barriers, it places greater responsibility on charities and trustees to make and justify those decisions.
The legal test remains the same. Trustees must be satisfied that there is a genuine moral obligation to make the payment. A claimant’s circumstances may be compelling, but charities should consider the evidence carefully before agreeing to part with charity funds. In some cases, this will involve considering whether your charity would otherwise be “unjustly enriched” at another person’s expense. The threshold remains high.
Key takeaways
Trustees remain under a legal duty to protect charity assets and should not be afraid to ask questions. A persuasive claim is not necessarily a strong claim. Before agreeing to a payment, ensure the claimant has properly substantiated their position and that any gaps in the evidence have been explored. As charities take more of these decisions themselves, robust scrutiny and healthy scepticism will become increasingly important. Read our guide to ex gratia payments for more detail.
Inheritance tax changes: is your legacy messaging up to date?
The inheritance tax landscape continues to evolve. One significant change will bring unused pension funds within the inheritance tax regime from April 2027. These changes may make charitable legacies more attractive, and affect the way supporters approach estate planning. They also provide a useful opportunity for charities to review the information they provide to supporters about legacies and inheritance tax.
Key takeaways
Take a fresh look at your legacy webpages, fundraising materials and supporter guidance. Does your inheritance tax content remain accurate? Are you making it easy for supporters and professional advisers to identify your charity correctly? Reviewing your materials now can help address potential issues before they arise and support more effective legacy giving in the future.
Contested legacies: protecting charity assets and maximising legacy income
Trustees are under a legal duty to protect and gather in charity assets including gifts left by will. In practice, that means looking carefully at the evidence before making decisions about claims, settlements or estate administration. A claim may appear convincing at first glance, but charities should not assume that a persuasive story is necessarily a strong claim. Maximising legacy income is also about ensuring estates are administered efficiently, costs are properly scrutinised and assets are actively pursued.
The same principle applies when managing risk. Executors may request indemnities before distributing a legacy. While indemnities should be approached with care, they are not always something to avoid. In some cases, a well-drafted indemnity can help unlock funds and avoid delays, provided the risks being assumed are understood and appropriately limited. Check out our guide on indemnities here.
Key takeaways
Sometimes the most effective approach is simply to keep asking questions. If a claimant advances a case, require them to substantiate it. If administration costs appear excessive, ask for a breakdown. If assets are not being pursued, ask why. The same principle applies to indemnities: consider the risks carefully and focus on the outcome that delivers the greatest benefit to the charity.
In some circumstances, an early settlement may preserve more value for the charity than a lengthy dispute. However, many claims are “try ons”, which should be resisted in full, politely but firmly. Ultimately, the objective is to ensure your charity receives the fullest possible benefit from the gifts left to it. Our practical overview sets out further steps to consider when evaluating a claim.
If you would like to find out more about any of the points outlined in this article, please get in touch a member of Charity Legacies team who would be happy to help. If you would like to receive legal updates about charity legacies or invitations to our events for legacy professionals, sign up here.
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The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further information.