Testamentary freedom is important to charities, because it allows people to choose to leave up to 100% of their estate to charity, even where they have family members who might hope to benefit. 

However, it introduces uncertainty and delay in estate and trust administration when disappointed family members challenge the way in which the testator or settlor has chosen to do things.

The same freedom does not exist in many other European or Islamic countries where the law dictates that certain proportions of an estate pass to certain relatives or classes of relative.  Offshore trusts are sometimes used to circumvent those restrictions with the result that some of the uncertainty introduced into English estates by the principle of testamentary freedom is also seen in the administration of offshore trusts. Where a charity is named as a beneficiary of an offshore trust, issues arising from the way in which the settlor has chosen to benefit his family through that structure might well end up on the desk of a legacy officer, even though the charity's interest is not strictly a legacy.

Discriminatory gifting 

Most parents will say they do not play favourites with their children.  But that does not seem to apply, for example, to succession planning in family or farming businesses.

Even where there is no business to consider, we sometimes see sons and daughters treated differently in wills and trusts – for example men being given capital and women receiving income only interests.

Succession plans – some conceived many years ago and reflecting different societal norms - are on occasion tainted by paternalistic assumptions that daughters or granddaughters will either be looked after by their husbands, or that family wealth should be protected from the influence and interference of feckless husbands.

It is also not uncommon in succession planning to see widows overlooked in favour of sons who are expected to look after their mother, leaving the widow – at best - with no autonomy.

This note focusses on gender discrimination, but the points may apply equally to, for example, discrimination against family members based on sexual orientation or other characteristics.

Attacks on unfair succession plans

Notwithstanding the principle of Testamentary Freedom, discriminatory succession planning is increasingly coming under attack from disadvantaged family members.

While equality is a fundamental principle in England and Wales, there is no general statutory provision against discrimination when it comes to inheritance.  But that does not mean individuals and trustees can simply ignore the principles of non-discrimination.

Variations

In Representation of Zedra Trust Company (Suisse) SA re C and D Trusts [2023], the Royal Court  in Jersey recently approved a trustee's decision (supported by its male beneficiaries) to vary a trust, set up in 1974, to benefit the Settlor's male descendants only, by adding the female line as beneficiaries.  

The trustee in that case had the power to vary the trust without the Royal Court's intervention but applied to the court for blessing of its decision because they considered it a momentous decision.  The question in the blessing application was simply whether (i) the trustee's decision was taken in good faith; (ii) it was a decision a reasonable trustee, properly informed, could make; and (iii) whether the decision was tainted by any conflict of interest.

Interestingly though, the Royal Court spent some time considering the public policy implications of what it was being asked to do.  In an earlier case concerning the interests of children born to unmarried or same sex parents (In the matter of the Y trust and the Z Trust [2017]) the court had considered the competing public policy arguments for (i) promoting trust business in the jurisdiction by being able to reassure settlors that their wishes (however discriminatory) would be respected; versus (ii) Jersey's commitment to protecting Human Rights.

That assisted the Royal Court in determining that it was right to bless the trustee's decision in the C and D Trusts to add the female line.  The Royal Court also focussed on the importance of promoting family harmony and the risk to such harmony caused by discriminatory succession plans.

If there is agreement in the family then much of the mischief created by discriminatory succession planning – whether by trusts or in wills - may be managed in a way which may delay (for example where a variation or blessing application is pursued), but ultimately should not unduly disrupt, the administration of a trust or estate.

In estates it is possible for affected beneficiaries of a will to agree a Deed of Variation designed to equalise benefit and a court's approval will not always be required.   That need not cause significant delay or otherwise trouble any charitable beneficiary, who will not typically need to be involved.

Charities may find themselves drawn into discussions over trust variations, or blessing application like that in the C and D Trusts case, where they are named beneficiaries, or default beneficiaries, of trusts.  To the extent that a charity wishes to take an active position on the application there may be reputational considerations, but a charity will often wish to limit its exposure (to costs and reputational harm) by resting on the court's wisdom.

Capitalising interests

Alternatively it may be possible to agree that income interests should be 'capitalised' and paid out as a lump sum.  There can be a positive benefit to charitable beneficiaries in those circumstances.  

Consider for example the case of an estate divided as to 25% each to three sons outright and 25% on life interest trust for a daughter, with remainder to her brothers and a default gift to charity.  If the family members agree to capitalise the daughter's interest there may be scope – treading carefully - to negotiate a payment to the charity beneficiary as part of the process.

Contentious applications

Sometimes – as the Royal Court noted in C and D Trusts – discriminatory planning will breed disharmony in the family, with battle lines drawn between those whose interests are served by discriminatory gifts, and those disadvantaged by them.

In England and Wales, the Inheritance (Provision for Family and Dependants) Act 1975 (the '1975 Act'), which already stands as the primary sword against injustice caused by Testamentary Freedom, may be wielded by surviving spouses or adult children where a discriminatory Will does not make reasonable financial provision (in the case of adult children that provision being limited by consideration of their needs).

It is worth noting that in the Court of Appeal in Cowan v Foreman [2019], when finding the first instance judge was wrong to decide the widow had no arguable case under the 1975 Act, said that the first instance judge had 'failed to have proper regard to all the circumstances of the case, including…the fact that Mrs Cowan…has no autonomy and no security.'  That may well embolden potential claimants who have been overlooked in favour of family members in the expectation that they will be looked after.

1975 Act proceedings arising from discriminatory gifts are not desirable for charities because it will almost certainly delay, and may frustrate, distribution to the charity in accordance with the testator's wishes.  Early exploration of alternative dispute resolution, and an awareness that perceived unfairness between the family may be driving things, is likely to assist.

Takeaways for charities

Charities tend to be on the periphery of family discussions around equalising discriminatory gifts, but there is potential to be drawn in where court applications are required to fix the mischief.  It is important in those circumstances to think carefully and cautiously about the position you take, to protect you in respect of both costs and reputation.

Where there is no agreement in the family, and a 1975 Act claim is issued, seeking to maintain focus on fairness as between the family may reduce the risk that the charity loses out.

<< BACK TO HOMEPAGE