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Article by Andrew Willetts - Follow The Signs

23rd September 2020

Andrew Willetts and Ben Sidgwick discuss the use of the Royal Sign Manual Direction
procedure to rescue invalid charitable legacies in England and Wales

 

Follow the signs


Key points
What is the issue?
A number of tax incentives encourage legacies to charities; however, with people living longer, the
risk of charities named in a will no longer existing at the date of death has increased. This leaves
executors facing a potentially complex process of identifying an alternative recipient.


What does it mean for me?
By exercising its prerogative, the Crown can provide a process through the Royal Sign Manual
Direction (the RSM Procedure) to permit charitable legacies that would otherwise fail to pass to
successor or similar charities, if the court or the England and Wales Charity Commission lacks
jurisdiction under the cy-près process.


What can I take away?
The difference between the RSM Procedure and the cy-près scheme, and when one should be
preferred over the other. Plus practical insight into how to successfully rescue charitable legacies
when the identified charities under a will have ceased to exist.


It has always been popular to make some testamentary provision for a charity, whether for tax purposes
or purely philanthropic reasons. It is not uncommon for those who have made a will to lock it away and
forget about it, even though it may become out of date. A particular problem can arise when specific
charities are identified but at the time of death no longer exist, leaving executors and trustees facing the
potentially costly and time-consuming process of rectifying the problem.
This occurred in a recent case involving a will drafted in 1941, which provided that the trust fund,
comprising various capital investments, was to be held to provide income for three consecutive life
interests. On the death of the survivor of the life tenants, the trust fund was to be divided equally between
four named institutions. One was a well-known children’s charity (which presented no difficulty) and
three others included a temperance society, a Methodist church Sunday school and a Methodist
association.
The testator died in 1942 and an unforeseen issue was his omission to provide for his granddaughter who
had been born some ten months after he made his will and three months before his death. The testator
failed to amend the will by codicil and the granddaughter was therefore left without any income or capital
from the trust, which, after over 70 years and following the death of the last of the life tenants, totalled
more than GBP500,000.
Further, by this time and on the face of it, three of the four named institutions appeared to have ceased to
exist either in their original form or at all.


Charitable intention
There was clearly a charitable intention demonstrated by the testator, which could permit the trustees to
prevent the gifts from failing. The risk with legacies such as these is that if at the time of the testator’s
death, when the trust takes effect, the institutions had ceased to exist, the gift would lapse due to
impossibility and fall into the residue or intestacy.
Importantly, in this case, as the testator had died only 12 months after the will was drafted, the probability
that the named institutions were still in existence at death was extremely high. Therefore, applying Re
Slevin, there could be no lapse and the testator’s next of kin or residuary legatees would be forever
excluded. Indeed, if the institution ceases to exist after the testator’s death but before the legacy becomes
payable, or is in fact paid over, the result is the same. In this instance, the legacy belongs to the institution
or any subsequent successor institutions to be applied cy-près or on its dissolution to the Crown, which
will, of its clemency, allow the legacy to be applied cy-près for analogous charitable purposes.


Cy-près or sign manual
Investigations revealed that the temperance society, the Sunday school and Methodist association had all
evolved or merged into identifiable institutions still functioning today. The only remaining problem for the
trustees to resolve was through what method the charitable distributions should be made to these
surviving institutions. The trustees had to determine whether the funds should be distributed through
the Crown’s prerogative under the Royal Sign Manual Direction (the RSM Procedure) by application to the
UK government’s Treasury Solicitor, or by application to the court or the England and Wales Charity
Commission (the Commission) for a cy-près direction under any pre-existing trust in the will.
The case of Re Bennett, Sucker v Att-Gen provides guidance on which method should be applied and
confirms that the court, and by implication the Commission, has jurisdiction under cy-près only if a ‘trust’
is interposed under the settlement. In Re Bennett, the England and Wales High Court ruled that a
charitable gift from the residue of an estate directly to a charity no longer in existence, and where there
was no declaration of trust, should be administered by the Crown under the RSM Procedure. In the 1941
case, the wording of the residuary clause was in the form of a direction without any discretion or trust
provided in this part of the will. The RSM Procedure seemed more appropriate and the application to the
Treasury Solicitor was made.
It followed that the usual protection for executors and trustees by obtaining court directions would not be
available in this case, but their legitimate concerns about any subsequent challenge to the distribution
could be mitigated by obtaining relevant insurance cover. The premium would be considered a
reasonable disbursement out of the estate.

A moral claim
As an interesting aside, the granddaughter elected to approach all four institutions in a personal capacity
reassuring them that she did not intend to put forward any formal claim against the trust but detailing a
‘moral claim’. In doing so, she cited a very reasonable assumption that her grandfather would have
wanted her to benefit had he had a better opportunity to review his will. She provided details and
evidence of her personal circumstances, including information relating to her health and finances, and
she gave indications as to how she might use any monies received.
She requested a small sum from each institution equivalent to less than 10 per cent of their ultimate
distribution, and two out of the four institutions agreed. It was then necessary for them to conclude their
internal procedures as well as discharge the Commission requirements, so as to enable these ex gratia
payments to be effected.


The RSM Procedure
Initially, the Treasury Solicitor indicated his view that the legacies might be subject to a trust due to the
specific manner in which the will was drafted, citing the relevant clauses. While acknowledging that the
position was not absolutely clear, the Treasury Solicitor confirmed that the Attorney General leaned
towards that interpretation.
However, on further representation, the Treasury Solicitor was persuaded to move the application
forward. These representations included citing Re Bennett and highlighting that, on the face of it, no trust
was interposed to administer the charitable gifts, but rather they were in the form of a direct gift out of the
balance of the trust fund. This meant that the RSM Procedure was the appropriate method of
administration for those charities that have ceased to exist either at all or in their original form. The clear
charitable intention was again highlighted in that the testator’s wishes were to gift the entire capital of the
trust fund to charity once the life interest beneficiaries had passed away. Helpfully, the Commission had
also been consulted and had stated that they were in favour of the Attorney General having jurisdiction.
Confirmation was sought from all four legatees that they would ring-fence their distribution for the initial
aims of the primary beneficiaries, that they agreed the RSM Procedure was the correct way forward and
that they had no dispute as to the manner of the intended distribution (i.e. equal division between the
four of them).
Ultimately, the Treasury Solicitor concluded his enquires and investigations before recommending to the
Attorney General that the Direction be made. The Procedure was relatively swift and there is no charge for
a Direction. Trustee indemnity insurance was obtained at a relatively modest cost to the trust, in order to
safeguard the trustees’ position and facilitate the final distribution.


Conclusion
Where it is applicable, correctly following the RSM Procedure and combining this with appropriate
indemnity insurance offers executors and trustees a very helpful and effective avenue to rescue charitable
legacies.
Importantly, it enables them to achieve resolution by honouring the original wishes of the testator or
settlor as best they can in all of the circumstances, while also adequately protecting their own position.
However, where there is clearly evidence of a trust, an application to the court or Commission for a cyprès
direction should always be preferred.

 

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Article by Andrew Willetts  - Follow The Signs