Discretionary trusts have potential to blur legacy administration

In a recent article by Kate Johnson at Wedlake Bell in Today’s Wills and Probate, Ms Johnson sets out her view that it is preferable for testators to benefit charities by including a discretionary trust in their wills.  Michael Culver’s subsequent article responded to many of the points made by Ms Johnson, setting out an alternative view. 

Whilst I can see the advantages of including a discretionary trust for certain smaller charities whose government or lottery funding could be impacted by a large legacy, this is unlikely to be a concern for larger charities who rely heavily on generous gifting in wills.

Kate Johnson’s article indicates that executors should be wary of the involvement of charity legacy officers because they are more likely to scrutinise the ongoing administration of the estate and will hold the executors to account.

Large and medium sized charities will frequently appoint legacy managers who will liaise with the executors in respect of the charity’s entitlement. They are often legally trained (many are, in fact, probate solicitors), and they understand the challenges that can arise during the administration of an estate and appreciate that there are aspects of the administration that will take time. In my experience, it is much more likely that a lay beneficiary will take an active interest in the administration and request detailed explanations about why certain steps are being taken.

Charities have a duty to maximise the funds that they receive so their legacy officers will need to request information about the administration. Their enquiries could flag up issues that could have been missed by the executor. Executors have a similar duty to maximise the value of the estate so, as Michael Culver said, it can be beneficial to have another professional point of view to ensure opportunities to create a saving to the estate are not missed.

An inexperienced executor may not be aware of the possible advantages of varying the estate to increase the share passing to charity. This can create a saving to non charitable beneficiaries as well as increasing the amount passing to charity. They could also miss the opportunity to mitigate capital gains tax by appropriating assets to the beneficiaries prior to sale.

There are other advantages to dealing with legacy officers. If there are a large number of charitable residuary beneficiaries, it is often possible for a lead charity to be appointed. The lead charity’s legacy officer will then act as a liaison between the executor and the charities. This can save time and costs.

The article is correct in saying that the charities may hold the executors to account but the executors should be holding themselves to account in any event and striving to provide a comprehensive service.

There are many factors that a will drafter should take into consideration in respect of charitable legacies but, it seems to me, that if the testator is keen to keep things simple and avoid disputes, there are other steps to take to reduce confusion which are mentioned in the article; in particular:

  • Making sure that the charity is clearly identified and that their name and charity number is checked on the Charities Commission website; and
  • If the testator wishes to include a stipulation that the charity apply the legacy for a particular purpose or local branch, this should be clearly expressed as a ‘wish’ rather than a binding obligation.

The addition of a discretionary trust could cause confusion for lay executors and lay beneficiaries who may struggle to understand the purpose of the trust and how it should be dealt with correctly. Charitable gifts in wills are incredibly important and more than 100,000 charitable bequests are left in wills each year. It is thought that the number of charitable bequests will rise by 30% over the next 10 years.

In my experience, it is possible for the executors and legacy officers to work collaboratively to ensure the administration of the estate progresses smoothly and the charities receive the largest possible sum to help them continue with their essential work.

 

Jessica Forrester is a solicitor at Hugh James specialising in estate administration.

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