Charity

Charity bequests in wills promote the ‘feel good’ factor: individuals can take comfort in providing for a worthy cause; and charities themselves receive recognition for their efforts. They can also be tax efficient to further incentivise giving. There can be problems however when bequests go awry. One would assume that any bequest that an individual intends would be of property that they own/have an interest in. There is an issue however where the subject of a bequest may not be possible where it no longer is part of the individual’s estate on their death i.e. it has in legal terms “adeemed”. This very issue came up in the recent case of The Parachute Regiment Charity v Deborah Louise Hay [2019] SC ABE 18. The case also should also make charities consider general issues when engaging in contentious estates matters and particularly if litigation could ensue. These are points we have considered before in the context of the Melita Jackson estate litigation.

Ademption is an important topic for both (i) individuals planning to make a will and (ii) those that are intended to benefit from a will. Given that ademption can result in would-be beneficiaries losing their entitlement to any inheritance, careful planning is needed to ensure that only assets capable of being subject to a bequest are included in the drafting of a will.

Facts of the case

The Parachute Regiment Charity (“Charity”), one of two residuary beneficiaries of the estate of the late Gregory William Hughes (“Gregory”), raised the action against his executor, Deborah Louise Hay (“Executor”). The following represents the facts of the case (which were accepted by both the Charity and Executor):

1. Gregory died on 14 December 2014 after having left a will dated 13 March 2014 which named Mrs Deborah Louise Hay as the executor (“Gregory’s Will”). Clause 3 of Gregory’s Will bequeathed his “interest” in a property known as ‘The Old Schoolhouse’ (“Property”) to the Executor’s daughter; and

2. Gregory’s father, James, left an estate which included the Property. When Gregory signed his will, the Property was still within James’s estate and was on the market for sale, which Gregory was aware of. The Property was sold sometime before mid-June 2014. Gregory received his share of James’s estate, which included the net free proceeds of sale of the Property, in mid-June 2014. Gregory’s Will was not changed prior to his death

The question for the Court was whether, properly interpreted, Clause 3 of Gregory’s Will was a valid bequest and, if so, whether by virtue of point 2 above, the legacy of that bequest had adeemed.

The legal issue(s)

The validity of the bequest was subject to question because of the Property’s sale: Gregory’s Will bequeathed the “interest” in the Property. The issue for the Court was in deciding what meaning to ascribe to the word “interest”: (i) Gregory’s interest in the Property itself; or (ii) his interest in the sale proceeds following the Property’s sale.

The Executor’s arguments

The Executor suggested that the meaning of “interest” was not immediately clear and that it could refer to more than a legal right or title e.g. a financial interest or otherwise. Continuing in this vein the Executor highlighted that in Gregory’s Will there was a power granted to the executor to “settle any pecuniary or specific legacy bequeathed by me either in cash or in kind or partly in cash and partly in kind”. So far as the Executor was concerned, Gregory did not care how the legacy was dealt with: “interest” meant more than a strictly legal interest because Gregory knew he had some kind of interest in the Property which was unlikely to have been a legal one in any event – he was a residuary legatee of James. The legacy in Gregory’s Will was the value of Gregory’s interest in the Property i.e. the sum of money which he received after the date of Gregory’s Will. Further, the Executor argued the interest could not adeem unless it could be proven that the value had been dissipated in Gregory’s lifetime (which would have been difficult to establish).

The Charity’s arguments

The Charity took a different approach: as a residuary beneficiary Gregory had no right or title to any specific asset within James’s estate e.g. the Property. Therefore Gregory’s entitlement was a one half share of James’s estate. The Charity claimed that the role for the Court was simply to interpret the words in Gregory’s Will and not speculate what was actually meant unless there was ambiguity: Gregory had an interest in the residue of James’s estate which included the Property. Gregory himself could not bequeath an interest in the Property because he himself didn’t have an interest in it – all he had an interest in was the residue of the estate. On that basis the legacy was deemed to be invalid.

Turning to the question of ademption the Charity argued that, if the Court deemed there to be an interest in the Property capable of bequest, everything depended on whether or not the Property remained in Gregory’s estate as at the date of his death. They referred to a previous case where the deceased had converted his interest in a house into shares in a company to which the house had been conveyed. That legacy adeemed because it no longer existed in the estate. The Charity argued that based on the agreed facts of the case one could conclude that the legacy of the interest in the Property had adeemed: the Property was no longer in Gregory’s estate upon his death. Simple!

The Court’s decision

The Court noted the importance of considering the circumstances surrounding the drafting of a will but highlighted that competing meanings should only be investigated where there is ambiguity. It took the view that in this situation the word ‘interest’ could be given its ordinary meaning and that there was no ambiguity: the Property had been sold and no longer formed part of James’s estate at the date of Gregory’s death. There was some debate as to whether Gregory’s being a “residuary” or “universal” legatee would have made any difference but the Court had no sympathy with this line of argument:

• If Gregory was a universal legatee his interest in the property could have amounted to a legal right to the Property, but that interest disappeared on its sale.

• If Gregory was a residuary legatee his interest in the property amounted to a right to receive a share of its sale proceeds as part of his share of the residue of James’s estate. However, that would have disappeared when he received the sale proceeds.

Ultimately the Court decided that it was clear that the legacy of the interest in the Property had adeemed.

What should we take from this decision?

There are lessons to be learned by both those making wills and would-be beneficiaries. For individuals making wills this decision underlines the importance of (i) clarity in making bequests and what happens in the event that property which is the subject of a specific bequest is void, and (ii) ensuring that the subject of a bequest is within their power to give i.e. it is within their estate. Beneficiaries too need to be cautious for, as in this case, the terms of a will may not be capable of being honoured. There is an added issue for charities that stand to benefit under a will: if there is a contentious aspect to the bequest, a decision should be taken on whether to enter litigation or not – there is a risk of reputational damage to a charity and contentious estate matters should be entered into by charities with sensitivity, yet appropriate robustness and seeking to resolve matters quickly and avoid protracted legal correspondence let alone actual litigation. As we discussed as the Melita Jackson estate case unfolded, charity trustees must remember the fundamental duties guiding them in their role.

We can help. Brodies is the only Scottish firm ranked ‘band 1’ in independent legal directory Legal 500 for each of charities, dispute resolution, contentious trusts and estates and personal tax, trusts and executries.

This blog was written by Kevin Winters with Alan Eccles.

Kevin Winters

Kevin Winters

Solicitor at Brodies LLP
Kevin joined Brodies in January 2019 as a solicitor in the Personal & Family department.Prior to joining the firm, he worked as a solicitor at an international law firm as part of a corporate tax practice. Kevin now focuses on all aspects of private client related work and also assists with charity law matters.
Kevin Winters