Guidance

Ex gratia payments by charities – case studies

Published 1 May 2014

Applies to England and Wales

• Publication for Northern Ireland
• Publication for Scotland

1. Ex gratia payments by charities – case studies

From time to time trustees of charities become legally entitled to receive property to which they believe that someone else has a stronger moral claim. This situation is problematic because of the principle that trustees must act solely in the best (financial) interests of the charity.

2. Background

In the past, trustees have approached the Attorney General for permission to make payments which they feel morally obliged to make. The Attorney General’s jurisdiction to authorise such payments is now shared by the Charity Commission. Section 106 of the Charities Act 2011 (formerly section 27 of the Charities Act 1993) enables the commission to authorise charity trustees to make a payment (or waive their entitlement to property) where the trustees regard themselves as being under a moral obligation to do so and where they would otherwise have no power to make the payment. Payments of this kind are referred to as ex gratia payments. More information about ex gratia payments and the process by which they are authorised may be found in the guidance Ex gratia payments by charities (CC7).

With the Attorney General’s agreement, the commission have decided to publish details of cases in which it has authorised payments under section 106, in the interests of transparency and so that potential

applicants understand the basis on which successful applications have been made. The names of the private individuals involved have been anonymised.

In general, where an application for authority to make an ex gratia payment has not resulted in an order being made, it has been because the commission took the view that the trustees had power to make the payment without its intervention. Usually, these were cases where there was a legal basis for the claim being made upon the charity, which the trustees were therefore able to settle. However, there have been cases where the commission have been unable to accept that reasonable trustees, in the proper exercise of their discretion, could fairly have concluded that they were under a moral obligation.

For example, in one case, an individual had claimed that property which had passed to a charity under a will had, in fact, been given to him by the testator before he died. There was no independent corroboration. The trustees decided that the evidence of the claimant was unconvincing and that they were not legally bound to give the property to him. Instead, they applied to the commission for an order under section 106 authorising them to meet his claim. However, the evidence that they relied on to justify a feeling of moral obligation was precisely the evidence which they had rejected as unpersuasive in considering the legal claim. Trustees must decide whether or not they have a moral obligation on the basis of the evidence. If they are not convinced by the available evidence, they cannot properly conclude that they have a moral obligation. Section 106 is not a ‘soft option’.

In another case the question arose whether we should authorise an ex gratia payment under section 106 to a trustee for work which he had done for the charity. In deciding that he should do the work, the trustees had known that the charity’s governing document did not allow trustees to be paid and that the commission’s authorisation would be required. In the event, the commission declined to give the necessary authorisation. By that time, however, the work had been done. The trustees then asked for permission to make a payment to the trustee under section 106. The commission took the view that there was no basis on which to conclude that a moral obligation had arisen. The trustees knew that any promise or expectation of payment was conditional upon the commission’s authorisation. The trustee had knowingly undertaken the work at his own risk. It therefore declined to make an order under section 106. [In fact, it agreed that the payment could be made on a rather different basis. It took the view that, in all the circumstances, the court would probably have allowed the payment on grounds of fairness - what is sometimes called the ‘equitable allowance’ - and advised the trustees that they could make the payment on that basis.]

3. The cases

1.By a will made in 1999, Miss A left the residue of her estate to three charities. She gave instructions on 1 May 2001 for her will to be changed to make three legacies of £1,000 each. She died unexpectedly on 18 May before a codicil could be prepared.

The commission authorised ex gratia payments of £1,000 each by the Royal National Lifeboat Institute, the Royal Marsden Hospital Charity and MacMillan Cancer Relief.

2.By a will made in 1995, Ms B left the residue of her estate to the Salvation Army. While in hospital for tests, she informed her niece and other family members that she intended to leave her mobile home to her niece. Ms B died unexpectedly while still in hospital, before she could give effect to that intention. Her estate was valued at £80k net.

The commission authorised the Salvation army to permit the niece to have the mobile home (value £35,000).

3.By a will made in 1984, Miss C left her house to a lifelong friend. She also left a legacy and a share of residue to the People’s Dispensary for Sick Animals (total value £7,784.73). In 1991 she sold her house and bought a leasehold interest in sheltered accommodation. There was evidence that she intended that the lease should be assigned to her friend (and, indeed, she may well have thought that that was the effect of her will).

The commission authorised the PDSA to pay the friend the value of the lease, £2,272.73.

4.By a will made in 1989, Mrs D left £5,000 to the Wood Green Animal Shelter. In 2001, she wrote a letter for her executors which instructed them to give the charity only £1,000 and to pay £1,000 to each of five other charities. The letter could not have the effect of modifying the will because the formalities had not been complied with.

The commission authorised the charity to give up £4,000 of the bequest.

5.By a will made in 2000, Miss E left the residue of her estate to three charities. She instructed her solicitors by telephone on 20 January 2004 to amend her will to make two bequests of £10,000 each. She sent her solicitor a copy of her will showing the various amendments that she wanted to make. She received the will on 22 January but died on 26 January before she was able to execute it.

The commission authorised the Salvation Army, Oxfam and Barnardo’s to give up £20,000.

6.By a will made in 1999, Mrs F left the residue of her estate to two charities. She instructed her solicitors by telephone on 10 December 2003 to amend her will to increase two legacies by £15,000 and £10,000 respectively. She cancelled an appointment with the solicitor because of illness and died before a second appointment could be made.

The commission authorised the Imperial Cancer Research Fund and the Royal British Legion each to give up £12,500.

7.By a will made in 1993, Mrs G left her residual estate to four charities. While dealing with her estate, her niece found a note written and signed by Mrs G in 2002 in which Mrs G indicated that the niece should receive £30,000 rather than the £10,000 legacy contained in the will.

The commission authorised each of the four charities (Marie Curie Cancer Care, the People’s Dispensary for Sick Animals, the Royal National Institute for the Deaf and the Multiple Sclerosis Society) to give up part of their entitlement totalling £20,000.

8.By a will made in 1999, Miss H made several bequests and left residue to six charities. On 18 October 2003 she signed a document headed Change of Will which added to, and increased some of, the bequests. That document had no legal effect because the formalities had not been complied with. She died on 31 October.

The commission authorised Marie Curie Cancer Care, the Salvation Army, the People’s Dispensary for Sick Animals, the Royal National Lifeboat Institute, St Peter’s Hospice Limited and the Charitable Trusts for the United Bristol Hospitals to make ex gratia payments of £2,250 each.

9.By a will made in 1996, Mrs I left her house to Help the Aged. On 3 November 2002, she gave written instructions for her will to be changed to revoke the gift. She died on 19 November 2002 before those instructions had been carried out.

The commission authorised the charity to give up the value of the house (approximately £240,000).

10.By his will dated 2 October 1987, Mr J gave the residue of his estate equally to two charities. By an unsigned Memorandum of Wishes, he removed the condition to which two legacies in his will had been subject (thereby saving them - the legacies were each of £2,000) and made three further legacies (each of £1,000). The Memorandum had no legal effect.

The commission authorised Cancer Research UK and Marie Curie Cancer Care each to give up £3,500.

11.Shortly before his death, Mr K indicated that he wanted the daughter of a family friend to have his motor car which his medical condition prevented him from driving. She had been reluctant to take the car while he was still alive. Mr K died unexpectedly and the car was sold by the executor.

The commission authorised the Royal Society for the Protection of Birds to pay the friend’s daughter the value of the car, £11,000.

12.By his will Mr L left fields to two individuals and the residue of his estate to a charity. He lost mental capacity prior to his death and his Receiver sold the fields so that the gifts failed.

The commission authorised the Lincolnshire Wildlife Trust to make payments to the individuals of an equivalent amount to the value of the fields that they would have inherited (£10,000 and £13,500 respectively).

13.The commission were asked to authorise the transfer of £100,000 from the Guild of Health to the Edward Wilson Memorial Fund of the Scot Polar Research Unit. It was argued that some of the original donors had been under the misapprehension that the appeal had a joint purpose of creating a memorial to Dr Wilson and promoting the work of the Guild. That misapprehension had been allowed to continue over a long time and comments of former trustees to the Wilson family over the years suggested that they too felt a similar moral obligation.

The commission authorised the transfer of the sum proposed.

14.Mr M left one-sixth of his residuary estate to the Salvation Army. By statutory declaration, his nephew said that the testator gave him two National Savings Certificates five months before his death. No steps were taken by the nephew before his uncle’s death to formalise the transfer, which therefore failed.

The commission authorised the charity to give up the value of the certificates, £4,441.74.

15.By his will, Mr N left his sister £10,000. She pre-deceased him. The evidence of another sister was that Mr N had made it clear that the bequest was to pass to the sister’s children if she died before him.

The commission authorised the Royal National Lifeboat Institute to give up the £10,000.

16.Mr O made a will in Scotland in which he left a sixth share of residue to the Woodland Trust. Subsequently, having changed his domicil to England, he executed a codicil to the will leaving additional bequests and increasing the number of those sharing the residue. The codicil was invalid under English law because it was signed by only one witness (although it would have been valid under Scots law).

The commission authorised the charity to make a payment of £3,567, in order to give effect to the codicil.

17.By her will, Mrs P left £5,000 to her nephew. Following the birth of the nephew’s first child, she took informal legal advice and was told, incorrectly, that the gift would pass to the child if her nephew died before her. At about the time of the birth of a second child, the nephew died.

The commission authorised Shrewsbury Roman Catholic Diocesan Trust to place £5,000 in trust for the two children.

18.Mr Q left his whole estate by will to Moorfields Eye Hospital NHS Trust which transferred the money to the charity called Moorfields Eye Hospital Development Fund. Amongst his belongings after his death was an envelope containing £11,000 in cash with two names written on it by hand. A relative provided evidence that Mr Q intended to benefit the named individuals and was unlikely to have realised that the cash would form part of his estate.

The commission authorised the charity to make payments of £5,500 to each of the named individuals.

19.By a will made many years before his death, Mr R left the bulk of his estate to his children (as specific legacies) and a modest gift of residue to charity. Over the years, his wealth increased considerably, with the effect that the will no longer reflected his original intention. He made at least one attempt to alter his will in favour of his children and the evidence suggested that he would have made fresh arrangements had his untimely death not prevented him from doing so. There was also strong evidence that Mr R intended to provide a long-time employee with the means to buy his own home.

The commission authorised payments by the East of England Agricultural Society totalling £218,000 to the three children and a payment of £30,000 to the former employee.

20.By his will made in 1994, Mr S left his residuary estate to the Gurkha Welfare Trust. The Trust informally agreed that the money would be channelled to an orphanage in Nepal established and maintained until his death by Mr S, which provided accommodation for the orphaned children of Gurkhas, and of other Nepalese civilians. By the time of Mr S’s death, the orphanage had ceased to provide a home for any children of Gurkhas and the Trust was unable to support it. The agreement with the Trust did not create an enforceable secret trust and the Trust applied for an order permitting it to transfer the residuary estate (valued at about £97,000) for the benefit of the orphanage.

The commission authorised the Gurkha Welfare Trust to transfer the residuary estate, which was valued at about £97,000, for the benefit of the orphanage.

21.Mr T left the residue of his estate to Marie Curie Cancer Care. He informed his niece on several occasions during his final, prolonged stay in hospital that he intended to alter his will to make bequests of £1,000 to each of three neighbours who had rallied round after his wife had died. However, frailty resulting from old age and heart problems prevented him from doing so.

The commission authorised the charity to make a payment of £1,000 to each of the neighbours.

22.By her will made in 1998, Mrs U left the residue of her estate to the People’s Dispensary for Sick Animals. In the summer of 2004 she informed her nephew on several occasions of her wish to recognise in her will the help and support which had received from a neighbour, a qualified nurse, by making a bequest to her of £2,000. Her solicitor was contacted but Mrs U became unwell and the proposed change to the will was postponed. Mrs U did not recover and died in September 2004 without putting her wish into effect.

The commission authorised the PDSA to make a payment to the neighbour of £2,000.

23.By her will made in 1997, Mrs V left her estate to her daughter; in the event that her daughter pre- deceased her, she left her house to her son-in-law and the residue of her estate to four charities. In 2002 the house was sold and Mrs V went into a residential home. She gave instructions in January 2003 for a new will under which the residue of her estate would pass to her son-in-law in the event that the daughter predeceased her, and to three of the four charities in the event that the son-in-law predeceased her. Despite reminders from the solicitors, Mrs V did not execute the will. In June 2003 the daughter committed suicide. By that time, however, Mrs V lacked testamentary capacity as a result of the illness that eventually killed her. Independent evidence showed that Mrs V expected her son-in-law to benefit from her death.

The commission authorised Sight Savers International, John Grooms Association for Disabled People and the International Glaucoma Association each to waive 50% of their entitlement in favour of the son-in-law (amounting to approximately £22,500 from each charity).

24.By her will dated 30 April 1998, Mrs W left the residue of her estate to the Haringey Meeting Room Trust. In September 2002 at Mrs W’s request, a relative prepared a new draft will by which several legacies were made to individuals and for the residue passed to another charity. The draft was retyped on 1 February 2003 to provide for an additional legacy. However, Mrs W suffered a severe stroke on 3 February and was unable to execute the will. The evidence of the relative (who also benefited from the rewriting of the will) was provided by way of statutory declaration.

The commission authorised the charity to give up the whole of its entitlement under the will, an amount in excess of £166,000.

25.By her Will Mrs X left the residue of her estate to the Friends of the Earth Trust. Evidence by way of notes prepared for Mrs X showed that she wished to make payments to various named organisations but was unable to do so as she had not received the funds from the probate of her husband’s will before she died unexpectedly. Probate was granted on 11 Aug 2004 and she died unexpectedly after a short illness on 29 Aug 2004.

The commission authorised the Friends of the Earth Trust to make payments of £5,000 to each of the named organisations.

26.Mrs Y’s will left her house to four beneficiaries. The gift was adeemed because Mrs Y suffered a stroke (which rendered her unable to manage her own affairs) and her house was sold in order to pay her nursing home costs. Half of the residue of her estate was left to the Salvation Army.

The commission authorised the Salvation Army to make a payment of £16,660 to be split equally between the four beneficiaries.

27.In August 1982, Mr Z sent a cheque for £20,000 to the South Atlantic Fund. At the time, he was being treated for paranoid schizophrenia and may have believed that he was merely lending the money to the charity in order to generate income for it. The Fund was dissolved in 1993 and its remaining assets distributed among various service charities. Three of those charities sought to make ex-gratia payments to Mr Z representing their respective shares of the £20,000 on the basis that, at the time that he sent the cheque, Mr Z lacked capacity properly to manage his financial affairs. (The fourth charity no longer held any money deriving from the Fund).

The commission authorised payments by the Royal Naval Benevolent Fund (£7,953.90), King George’s Fund for Sailors (£1,841.50) and the Army Benevolent Fund (£10,073.30).

28.In this case, the testator, Mr A, made a will in 1973 in which he left his estate (valued at over £300,000) to his wife and, if she pre-deceased him, to the RC diocese of Portsmouth. Evidence from his daughter indicated that, during his final illness, Mr A intended to change his will in her favour. That evidence was supported by independent evidence that Mr A was disillusioned with religion and envisaged that his estate would pass to his family rather than the Church. Mr A appears to have been torn between giving effect to his late wife’s wish to benefit the Church and his own sense of responsibility towards his family. However, although it seems that Mr A had formed the intended to alter the provision made by his will, there was no evidence that he had formed a settled view about exactly how he should do.

The commission authorised Portsmouth RC Diocesan Trust to make a payment of £100,000 to Mr A’s daughter.

29.Mr B intended to change his will, by which a substantial gift was made to the Carstairs Countryside Trust, and had given detailed instructions to his solicitor to that effect. However, Mr B died unexpectedly before being able to execute a new will.

The commission authorised the charity to make a payment of £70,000.

30.Mr C, whose will made a gift of residue to charity, subsequently gave instructions to his solicitor to increase pecuniary legacies to his nieces and a friend who looked after him. The will was prepared but Mr C was taken ill on the day of the appointment and telephoned his solicitor to tell him that he was being admitted to hospital. He died unexpectedly the next day.

The commission authorised the Donkey Sanctuary to make ex gratia payments totalling £1,052.63.

31.Mrs D left the bulk of her estate to the National Trust. In mid-December 2002 she told her financial adviser that she had invested £5,000 in an account for one of the two granddaughters of her cousin and would need to change her will to ensure that the granddaughter received the money. She also gave instructions for £5,000 to be invested in trust for the other granddaughter. Over Christmas, she informed family and friends that she intended to see her solicitor to change her will. She died unexpectedly in mid-January 2003, without having seen her solicitor and before the second investment had been made.

The commission authorised the National Trust to pay the money in the account to the first granddaughter and to pay the second granddaughter the sum of £5,000.

32.Mrs E made a will in 1979 leaving the whole of her estate to charity. In 2001 she instructed lawyers to draw up a new will which gave 3/21sts to the charity and the remainder to her family. This will was not executed because of Mrs E’s infirmity. We received statutory declarations from her family as to her intention and a letter from a friend of Mrs E who does not benefit under the will confirming that Mrs E wanted her family to benefit from her estate. Mrs E and her husband had made mirror wills in 1979 under which the family had not benefited but after his death in 1982 Mrs E had become reconciled with his family. The charity trustees did not regard themselves as being under a moral obligation with regard to the 50% of the bequest which had effectively come to them from Mrs E’s husband via her estate. However, they did regard themselves as having a moral obligation with regard to the remainder of the gift.

The commission authorised the charity, the Bequest of Grace Hudson, to make six payments each of £16,107.