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The law has not usually favoured charities when it comes to contested bequests, but recent cases offer hope. Anne Robinson explains.

Bequests or ‘testamentary gifts’ can be a gold mine for charities, providing an important income stream to support their valuable work. According to research by the Queensland University of Technology’s Australian Centre for Philanthropy and Not-for-profit Studies (ACPNS), the median size of a testamentary gift is twice as high as that of a non-testamentary gift to a charity (Every player wins a prize? Family provision applications and bequests to charity, by Myles McGregor-Lowndes and Frances Hannah, published in October 2008).

However, charities can sometimes lose out on bequests due to the operation of state-level succession law, which gives relatives and other dependants of the deceased an opportunity to make a claim on an estate in ways that could significantly eat into testamentary gifts to charities.

As a result, charities need to carefully consider the implications of this area of law to ensure that testators’ wishes are properly honoured – and the work of charities can be supported – long after the testator’s passing.

FAMILY PROVISION REFORM

It was not always possible for relatives and other dependents to overturn the wishes of testators because testators used to have ‘total testamentary freedom’ – that is, they could decide where all of their estate went after their passing, without interference from others. The introduction of Testators’ Family Maintenance or family provision legislation was an interference with testamentary freedom on good public policy grounds.

The notion of total testamentary freedom was arguably a construct of the 19th century, an offshoot of the English laissez-faire liberalism fashionable at the time. However, as years went by, it began to be recognised that testamentary freedom of this kind allowed some testators to avoid their responsibilities to close family – widows and orphans in particular.

This was exacerbated by a spate of notorious cases in which wealthy men were able to ignore their responsibilities to spouses, children and other dependant family members. So family provision legislation has been in place in New South Wales since 1916, with equivalent law implemented in other states.

Over time, according to the ACPNS research, family provision claims have proliferated for a number of reasons. These include that the concept of what a ‘family’ is has broadened; community expectations and values have changed; there is increased wealth in the community; as well as changes in the legal environment.

THE LAW IN NEW SOUTH WALES

In New South Wales, the current family provision law is found in the Succession Act 2006 (Succession Act), where section 59 sets out two requirements which must be complied with for a court to make a family provision order. Firstly, the person in whose favour the order is to be made (the ‘applicant’) must be an ‘eligible person’ – and this is now defined broadly to mean a spouse, a de-facto partner, a former dependant spouse, a child or grandchild, step or adopted child, a parent, or other dependants, including same-sex partner.

Secondly, the court must decide whether the deceased person has made adequate provision in their will for ‘the proper maintenance, education or advancement in life’ of their dependants.

To help determine whether these requirements are met, section 60 of the Succession Act states that certain matters are to be considered by the court. These include the nature and duration of the applicant’s relationship with the deceased, the obligations or responsibilities the deceased owed to the applicant, the general status of the applicant (financially, physically, any disabilities etc), contribution by the applicant and any evidence of the testamentary intentions of the deceased, and any other relevant considerations.

APPLICATION OF THE LAW

Until very recently it has been charities that have lost out in most cases under the New South Wales family provision scheme. This is because charities are often residuary beneficiaries in wills; that is, they are named as the beneficiaries of the remaining or ‘residue’ of assets once all the specific gifts are made. In addition, what compounds the situation is that courts have been ready and willing to interfere in testators’ wishes in an ever-widening variety of circumstances.

For example, in the 2002 Supreme Court case of Edwards v Terry, the testator left 40% of her estate to each of The Salvation Army and the Royal Blind Society, and 15% of her estate to her only son. Her son’s subsequent application to the Supreme Court to vary the testator’s will was successful, increasing his share of the estate to 71% (and reducing the charities’ share of the estate to 12% each).

The Supreme Court discounted the fact that her son had a troubled relationship with his parents and had assaulted them, concluding that the applicant’s ADHD was sufficient to forgive his transgressions and necessitate a sizeable increase in the share of his mother’s estate.

More recently, in Portis v Green, the Supreme Court in 2017 overturned the wishes of Portis (the testator) who did not want to provide any benefit from his estate to his family, including his son.

Portis had instead left all of his estate to the NSW and ACT Freemasons, an organisation with which he had a strong connection, and not his son because he didn’t care for his father, didn’t have any bonds with his family, there had been litigation over the younger son’s estate, and he hadn’t cared for his immediate family.

The son contested the will and ultimately received 60% of the distributable estate. The Court focused on the son’s financial needs – impending divorce, possible loss of his home, and low income and superannuation – instead of his contribution to his father’s care or his father’s dependency on him.

However, since this decision, the NSW Court of Appeal has in three significant and unanimous decisions overturned lower court decisions, beginning to question whether decisions have gone too far in reducing generous awards under the Succession Act and have been too careless of the intentions of testators.

The Court of Appeal has said that there must be more than a mere familial relationship between the testator and the applicant, and there must be a social, domestic or moral obligation on the part of the testator to provide for the applicant.

In one of these cases, Sgro v Thompson [2017] NSWCA 326, the Court of Appeal emphasised the importance of ensuring the first part of the test in section 59(1)(c) of the Succession Act had been properly considered before the second: that is, whether the testator had made adequate provision for the ‘proper maintenance’ of the applicant should not be equated with ‘financial need’, so that less-deserving claimants become automatically entitled to further provision.

The Court said that it should respect the testator’s “superior position in deciding what is proper for the maintenance of their relative, having regard to all of a family’s circumstances and the merits of other people’s claims”.

However, these cases didn’t principally affect charity beneficiaries, so it remains to be seen how these decisions will impact in circumstances where there are not competing family members but rather family members competing against residuary charity beneficiaries.

The principles should be the same, but the moral arguments are somewhat complex. In practice, there are many issues that arise when family provision claims are made – applicants may be seen as self-interested, entitled and disrespectful towards the wishes of the deceased, but charities are typically unwilling to bear the cost – financial and reputational – of contesting wills.

Nevertheless there is reason for hope as these decisions demonstrate the Court of Appeal’s insistence on a more disciplined approach to what is often considered the unbounded discretion of a judge to order further provision from a deceased estate (see the analysis of these cases by Michelle Painter SC in the Law Society Journal April 2018). It is also important to remember that cases are decided very much on their facts in the application of the statutory principles.

WHAT CAN CHARITIES DO?

So what about the practicalities? As a charity, what steps should you take to ensure that you actually receive the charitable bequests of testators who want to support your organisation’s work? You could encourage your donors to leave inter vivos gifts (that is, gifts while they are alive) through such methods as private ancillary funds, charitable trusts and straight donations.

However, if they want to leave a testamentary gift, they could be encouraged to adequately provide for genuine dependents, to lessen the likelihood of any family provision claim. Your organisation should also have good internal policies to prevent disputes about bequests.

Record keeping is also very important (whether it be about the testator’s story or the legal or other processes underpinning their bequest) – this allows for greater support of any claim you may want to make when a will is contested. Seek timely legal advice, and once family provision disputes arise, it would also be prudent to adopt a considered and professional attitude to these disputes.

After a donor passes away, maintain an intentional policy on involvement in litigation. As an initial step, tell your charity’s ‘story’ by filing an affidavit rather than immediately joining proceedings. However, don’t be afraid to join proceedings where appropriate – the testator can’t speak up for their intentions, so it is reasonable for you to do so when necessary.

At the end of the day, what you should consider in relation to bequests is best summarised by the recommendations of ACPNS:

  1. The value of values: donor values and attitudes could be harnessed better to guide charity actions and communication.
  2. Remember the giving pyramid: provide more opportunities for testators to give at higher levels in other ways.
  3. Make bequesting easy: showcase, help and open low-pressure avenues of finding out more.
  4. Recognise champions: encourage existing testators to share their stories and values.
  5. Put donors in the communication driver’s seat: offer, honour and update communication preferences.
  6. Avoid age stereotypes: images need to appeal to a younger (middle-aged) demographic too.
  7. Empower the working class: this is not just about the ultra-wealthy; the less wealthy are very often more generous and can see the power of good they are exercising via bequests.
  8. Size doesn’t matter: demonstrate that bequests are extraordinarily affordable for all.

Careful consideration and implementation of advice about charitable bequests will hold you in good stead in the long run and ensure that steady income streams are available to support your valuable work.

Anne Robinson AM

Anne is the founder and Principal of Prolegis Lawyers. She has advised on corporate law, governance, charitable trust structuring and tax issues for a wide range of Australia’s charities, and has acted for independent schools, churches and Christian charities for over 20 years. Anne also has over 30 years’ experience in nonprofit governance and has been a member of many boards including as a director and board chair of World Vision Australia for 12 years.

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