Succession: Charity legacies made simpler

The Charities (Regulation and Administration) (Scotland) Act 2023 received Royal Assent on 9 August 2023. The legislation modernises and tidies up some aspects of regulation of charities in Scotland. It will enhance accountability, for example, by requiring charity trustees to be named in the Scottish Charity Register, and publication of charity accounts. The new legislation is important not only to charities specialists, but to all who draft charitable legacies in wills.

Charitable legacies are very common in wills. Under the current law, when a charity changes its legal form, or merges with another charity, the original beneficiary no longer exists, and therefore cannot receive a legacy. Well drafted wills prevent the potential loss of such a legacy by incorporating a standard additional clause giving discretion to executors to redirect the legacy to a successor charity. Such drafting can be useful, but cases such as Vindex Trustees Ltd [2021] CSIH 46 demonstrate that these clauses do not guarantee that the distribution will be trouble-free.

From the charity’s perspective, the risk of losing valuable legacies has meant that it is not sensible to wind up the original charity, even where all the assets have been transferred to a new legal entity or another charity. Trustees have opted to keep the original charity in existence to receive any legacies, necessitating extra administration and compliance, as well as cluttering the Scottish Charity Register with “shell” charities.

Default position reversed

The new provisions, which come into force on a day to be appointed but will apply to wills made before that date, seek to resolve these practical issues. Section 13 of the Act creates a new record of charity mergers, which allows for the automatic transfer of legacies to a successor charity. A “charity merger” covers the situation where assets of one or more charities are transferred to another, or where the charity changes its legal form (commonly to a SCIO). This shift is in line with the law in England & Wales. It is in effect a reversal of the current default position.

These provisions mean that, where a merger is on the record, the successor charity will automatically be entitled to a legacy bequeathed to the original charity, unless it is clear from the terms of the will that the testator intended otherwise. The testator still has control, but must now opt out of the transfer, rather than opting into the transfer of the legacy. The provision makes it clear that the inclusion of a destination-over would not of itself be evidence of an alternative intention. When instructions are taken, testators should be asked what they would like to happen if the charity merges or changes form. If they have a strong attachment to that specific charity, and not to similar or successor charities, they might choose not to have the legacy transfer automatically. In such a case, the will or codicil should clearly state that the legacy is not to be paid to a transferee under a charity merger.