Bequests to Charities

Monday November 4, 2013

What to consider when your bequest from a deceased's estate is challenged by the family

Charities often receive bequests of property in a will of deceased person.

This can be for a number of reasons, for example:

  1. The testator had some form of personal involvement/interaction with the charity;
  2. The testator has no family to leave their estate to;
  3. The testator believes that the charity does beneficial work in society, and the bequest simply recognises the testator's appreciation.

However, what a charitable trust may not consider is that the bequest could be subject to a claim by a member of the testator's family pursuant to the Family Protection Act 1955.

The following members are entitled to make a claim under the Family Protection Act 1955:

  1. Partner of the testator (whether married, civil union or in some circumstances, a de facto partner. A de facto partner can only make a claim if there are also eligible under the Property (Relationships) Act 1976;
  2. Children of the testator (including adult children);
  3. Grandchild of the testator;
  4. Step Children of the testator (if the step child's parent is able to make a claim under the Property (Relationships) Act 1976 and has been wholly or partially maintained by the deceased step parent);
  5. Parents of the testator (if the parent can prove that they have been wholly or partially maintained by their child; or if the deceased has no surviving partner or children).

What the applicant family member will need to prove to the Court is that the testator has breached a moral duty to provide proper maintenance and support of the surviving applicant family member.

In the case where a testator has left some money or other property to a Charitable Trust, the bequest may be subject to scrutiny by the Court.

What can a charity do if a claim is made against a deceased estate?

Prior to 2002, the convention was for charity to take a benevolent role during litigation. i.e. That they would not actively participate in the proceedings.

However, since a decision was made in the Court of Appeal in Auckland City Mission v Brown[2002] 2 NZLR 650; (2002) 22 FRNZ 232 (CA), the charities role during litigation has been recognised as having the ability to actively defend proceedings.

In Auckland City Mission, the deceased left most of his $4.6 million estate to charities and they vigorously defended their bequests against the testator’s only daughter’s claim for further provision from her father’s estate. In the Court of Appeal the daughter criticised the charities’ stance. However, the Court said, at para 42:

“We can see no basis for criticising the stance taken by the charities in this case. In some circumstances it may be appropriate for the charities simply to abide the decision of the court and provide relevant information as to the testator’s connection with and intentions in benefiting the charity. One such case is where competing claimants can be expected to test the respective claims. In other circumstances, as here, where there is no other beneficiary defending the will … it is, in our view, entirely proper to support the will, test the claims, and while perhaps formally submitting to the order of the court, respectively suggest what, if any, further provision should be made for the claimants.”

Since it has become acceptable for Charitable Trusts to take an active role in litigation a charity may wish to consider their options if they are faced with this situation.

Charitable Trusts may have the following options available to them:

  1. Take a back seat in relation to the litigation and abide by a Court Order;
  2. Take an active role in relation to the litigation, instruct a lawyer to act on their behalf to defend the bequest made to them by the deceased;
  3. Negotiate with the applicant family member to reach a resolution without a Court hearing.

One major consideration for a charitable trust to take into account is the cost factor.  If the bequest to the charitable trust is small, it may not be worth taking an active involvement in Court proceedings. The costs of instructing a lawyer during proceedings could far outweigh the benefit of defending the bequest. On the other hand, if the bequest is large, the Charitable Trust may wish to consider taking legal aid advice and instructing a lawyer to act on their behalf during the proceedings. Costs could be reduced by instructing a lawyer to act on their behalf in relation to advice and negotiations for settlement.

What a Charitable Trust needs to consider when a claim is made against their bequest

A Charitable Trust will receive information (as a party) in the applicant family member's affidavit about the size of the estate, the proportion of the bequest made to the Charitable Trust in relation to the size of the total estate, the size of the applicant's bequest (if any) in relation to the size of the total estate, and the size of any other bequests made to other beneficiaries under the will (other beneficiaries may include other family members, friends, and other Charitable Trusts).

Secondly, the Charitable Trust may need to consider whether the proportion of the bequest they are due to receive from the will is a significant percentage in relation to the total estate.  For example, some questions to ask may be: Is the proportion of the estate to the charity more that the proportion due to the applicant family member? Do other beneficiaries under the will receive similar proportions to the applicant family member?

Thirdly the Charitable Trust needs to consider the applicant family member's proposal. If the Charitable Trust agrees with the proposal, the legal costs to the Charitable Trust may be substantially reduced.

The important thing to note is the Charitable Trust may not know whether they are consenting to a settlement that is not in accordance with the case law unless they obtain legal advice.

If the Charity is willing to accept a settlement proposal without legal advice, it may mean that the charity is not receiving its entitlement under the will which it would otherwise receive.

If your charity encounters these issues, we suggest you contact a lawyer to obtain advice (at least in relation to the charity’s options if proceedings have been filed).

This article was written by Holland Beckett solicitor Renee Turner.