When legacies are in limbo

The Register of Mergers has failed to resolve a problem that divides charity lawyers

Legacy giving
Legacy giving

The problem faced by merged charities that want to make sure they receive bequests left to them in their old names is one of the 'specific matters' for investigation in Lord Hodgson's continuing review of the Charities Act 2006. The act was meant to solve the problem, but in practice it hasn't.

Traditionally, merging charities sought to avoid potential obstacles to obtaining legacies by retaining a 'shell company' of the pre-merger charity, able to receive and then pass on gifts and legacies to the newly merged organisation.

Section 3.11 of the Charities Act 2011 says that any gift for a transferor charity - that is, one that has merged with another 'transferee' charity - on or after the date of a merger being registered with the Charity Commission, should "take effect as a gift to the transferee".

In spite of this provision, many lawyers continue to advise merged charities to maintain a shell status to avoid losing out on legacies.

Francesca Quint, senior barrister at Radcliffe Chambers, is one such lawyer. She says the wording of the legislation has not proved robust enough and that a redrafting of the law, which might follow Lord Hodgson's review of the 2006 act, could remedy the situation.

She says: "The attempted reform, which was made to avoid the need to keep charities alive in order to collect legacies after the date of the merger, did not work. To be safe, merged organisations still have to keep the original charities in existence. If they do not, they risk losing future legacies."

Tom Murdoch, an associate at Stone King Solicitors, says the provisions of the act can be frustrated by the wording of a will where it is specifically stated that the named charity must still be in existence, without making clear what the testator wishes to happen should that charity no longer exist.

Murdoch says that, although he is sympathetic to calls for a redrafting of the act, any change that allows testator's wishes to be overridden in the interest of charities has to be treated with caution.

He says that a more immediate solution would be to ensure that anyone looking to reward a charity after their death considers all the possibibilities and drafts the terms of their will in such a way that it reduces the risk of their chosen cause being left out of pocket.

Ros Harwood, a partner and head of the charities and education team at Gordons LLP, agrees that careful planning is needed. "The point in question is how the will is drafted," she says. "If a gift depends on the original charity still being in existence, then the gift will fail if the original charity has transferred its assets."

Charities can also face problems getting hold of their legacies when testators choose to list a 'back-up' charity as a recipient in the event that their original charity of choice has ceased to exist. For this reason, the Charity Commission website even advises organisations to seek legal advice before putting details of their mergers on the register.

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