When the name doesn't fit

In Brownrigg’s Executor (Vindex Trustees Ltd), Petitioner [2021] CSIH 46, the Inner House considered the treatment of a legacy to a charity under a will where it transpired that the name of the charity was incorrect in the will. While considering the circumstances faced by the executor in this case, it also provides an opportunity to reflect on the wider issues of “lost” legacies that can arise following the restructuring, merging and incorporation of charities.

The background

In this case, the deceased, who had survived her husband and had no descendants, left an estate worth about £1.3 million. The will provided for a legacy to a friend, with the residue to be divided among a political party and three charities.

One of the charities specified was the “Nelson Mandela Educational Fund, South Africa”. Following the death, the executor had been unable to identify a charity by the name of the Nelson Mandela Educational Fund. After investigation, the executor ascertained there was a “Nelson Mandela Children’s Fund” in South Africa. It was further noted that, at the time of the making of the will, it was the longest established South African charity bearing Nelson Mandela’s name.

Petition for directions

The executor petitioned the court for directions as to whether a share of the residue could be paid over to the Nelson Mandela Children’s Fund.

The court considered the rules on interpretation of wills where a beneficiary has been wrongly designed. This was a case where that appeared to have happened. There was no evidence that there had ever been a “Nelson Mandela Educational Fund”. That would have taken matters in a different direction, where a legacy potentially could be “lost”, to which we will return later.

On the matter of interpretation, the court rehearsed that an incorrect designation is not fatal to a legacy, the situation being one of the longstanding situations in which extrinsic evidence can be considered to unlock the true identity of the beneficiary. As a situation which has allowed the use of evidence beyond the four corners of the will itself, this case did not need to explore the rules on will interpretation that have been evolving since Marley v Rawlings [2014] UKSC 2 (see, e.g. Gray’s Executors v Manson’s Executor [2017] CSOH 25, and most recently Downey’s Executrix [2021] SC EDIN 60).

While the intended charity had apparently been wrongly designed, it was perhaps a case where the executors could “‘see through’ the erroneous description and perceive the true identity of the intended legatee” (para 8). If the executor was able to identify (with reasonable certainty) the correct charity notwithstanding the misdescription, it could then proceed on the basis of using its discretion in the management of the estate.

Executor judgment and robust advice

The court determined that, as the executor could with reasonable certainty identify the correct charity, the case involved “matters concerning the administration of the executry estate [that] fall to be resolved by the exercise of the executor’s managerial discretion and good judgment. The court does not consider that it should adjudicate or give advice on the matter” (para 13). Accordingly, it was up to the executor to make a judgment about making over the share of the residue to the Nelson Mandela Children’s Fund.

While the court decided it should not, in the circumstances, give directions, it concluded that it was reasonable for the executor to have made the petition to the court. The court also noted that the executor’s intended course of action (on paying to the Nelson Mandela Children’s Fund based on it being the true charity) was fortified by having sought the opinion of counsel. It highlights that in more complex matters surrounding legacies and will interpretation, an executor should seek appropriate advice to base their proposed actions, the duty to obtain and consider advice being a key one for executors. In executor duties, the workings under a course of action are in many ways as important as the chosen course of action.

Difficult decisions

The outcome of this case might place some executors in a difficult and somewhat lonely position. Those executors will need to consider whether there is reasonable certainty underpinning their next move. However, in refusing the petition, the court in many ways empowers executors and underlines the importance of their role as decision-makers. Executors can, and have to, exercise judgment. An executor is not simply following the instructions of beneficiaries or relying on the court for guidance. The decision provides an affirmation of the decision-making powers of an executor.

There will nevertheless be difficult cases where executors, cognisant of their duties – and (potential personal) liability – will seek reinforcement from the court for their proposed course of action in an estate. That could especially be the case where rather than having any challenge from prospective alternative beneficiaries, those other parties are standing by and watching. They are not providing an active competitor, nor actively supporting the executor’s proposed next step. Estates with the potential for difficult judgment calls can also merit the consideration of obtaining trustee indemnity insurance.

In Brownrigg’s Executor, the court considered it was appropriate to have petitioned the court and the expenses of the procedure were charged to the estate. That will give comfort to executors that in those more difficult cases they should not rule out seeking directions. Seeking directions will, itself, be part of an executor acting carefully and prudently. But this decision shows that in some cases the court does not consider directions are required; and in some cases the court could find the executor personally liable for costs of the petition. It is not always easy being an executor.

“Lost” legacies: a general issue

In this case it appeared to be possible to identify the correct beneficiary. The executor could work to “see through” the problem and, without court sanction, find the solution. While distinct from the factual position presented, the case provides an opportunity to reflect on situations where the proposed recipient charity no longer exists.

The will in this case provided a mechanism by which, had a charity named in the will (correctly or otherwise but still identifiable) ceased to exist, the executor had sufficient power and discretion to redirect the entitlement to another, similar, charity. The particular clause in the will (following a fairly common approach to these types of clauses) also covered a charity being “wrongly designed”. We should note that in Brownrigg’s Executor, the opinion of counsel obtained by the executor concluded that such a clause was only triggered and should be used where the executor could not identify the true beneficiary – where it could not “see through” the wrong designation. This is a point for will drafters and executors to consider. What do such clauses cover and when do their powers become usable by an executor?

A charity could cease to exist through dissolution, merger or even the incorporation process for a trust or unincorporated association to become a Scottish charitable incorporated organisation. As we have seen, the power in question was not triggered in this case. It could have been triggered had the Nelson Mandela Children’s Fund been dissolved in the period between the will being made and the death.

But what happens where a will does not contain that form of wording and a charity no longer exists? In that situation, the legacy might fail unless there was a general charitable intention evinced (or might be apparent: see, e.g. Pomphrey’s Trustees 1967 SLT 61; Tod’s Trustees 1953 SLT (Notes) 72). It might then fall to other beneficiaries under the will or fall to be distributed according to the laws of intestacy. In extreme situations, it could pass to the Crown.

If any of these happen, the legacy will not pass as the deceased intended. Indeed, the generous bequest might fall into entirely the wrong hands as far as the deceased is concerned – especially under the laws of intestacy.

Time for reform

When these cases arise, Scots law falls back on trying to identify a general charitable intention supported by a favouring charity where appropriate. Scotland does not have anything akin to the register of mergers – a statutory method of linking dissolved charities to a successor for the purposes of otherwise failed legacies – which exists under English law. The register of mergers rules transport the entitlement to the legacy from the defunct charity to the successor, something that would not automatically happen in Scotland. In Scotland, a saving provision in this type of situation is the wording found in the will. And the will in question might not have the necessary wording. It might then require a court petition to confirm what should happen to the legacy.

There is an ongoing review of Scottish charity law. This might provide a neat opportunity to consider a solution like a register of mergers to avoid the uncertainties and risks that the law creates around charitable legacies. These are uncertainties and risks which are coming into greater focus as charities consider more modern and robust governance structures. This is particularly apparent for unincorporated associations and trusts that are actively considering becoming a Scottish charitable incorporated organisation, a process that sees the closure of the existing charity, creation of a new charity and a transfer of assets and liabilities. On assets, legacies in wills of living people fall into the category of spes successionis, with limitations on their transfer as a right or entitlement which has yet to materialise.

A statutory answer to this will give greater certainty over legacies and reduce barriers to unincorporated charities adopting improved governance and legal structures.