Gifts of property to a charity by will have clear advantages to both a testator and the receiving charity. It is often the donor’s main and often most valuable asset and is capable of being used by the charity, either by being rented out as an investment property or for use to carry out the charity’s purposes. However there are many issues to which a charity should be alert when dealing with gifts of property. By acknowledging and addressing these issues at the outset, a charity can be sure that it has received the gift of its design.
The following article is a brief canter through some issues that often arise with property being gifted to charities in wills. It will look at some of the pros and cons of the most common types of gift of property. It will provide some examples of issues we find often arising in these instances and tips on how to avoid them.
The simplest gift is an outright gift of a property to a charity in a will. As a property is often a donor’s main and most valuable asset, this is a very generous and valuable asset being gifted to the charity.
If the property is surplus to a charity’s needs, the property can be sold to realise a significant sum for the charity. Alternatively, the property may prove to be a useful asset that the charity can use directly in carrying out its charitable purposes, or indirectly to fund its activities by renting it out as an investment property. We have seen instances where a charity has been left a hall and adjoining terraced property and these have subsequently been used by the charity for the last 100 years for its purposes or to generate funds for its purposes.
That said, there are some points to consider when left an outright gift of property.
On being transferred a property, the charity may take on various liabilities. It is important to carry out appropriate legal due diligence before accepting the transfer of the property. This is to ensure that any problems or questions can be raised prior to any transfer at a time when the executors may have information available to them.
In one instance we have seen, a charity was simply sent a copy of the assent to sign. On further digging it became apparent that an old mortgage and lease were registered on the title, which needed to be removed. Details then later emerged of a tenant in the property, meaning that the charity took on landlord responsibilities for the remainder of the tenancy.
A charity is more likely to obtain any information available before signing the assent rather than after. This information will prove very helpful in the future if the charity decides to sell the property. Sometimes this is not as simple as information to be found in title deeds, although executors may hold limited information themselves.
If the property is not needed, the process of selling can take some time, but due diligence prior to the assent will assist any sale to run smoothly. As with any property sale by a charity, a qualified surveyors report will be needed for the charity’s trustees to be happy the terms are the best that can reasonably be obtained. Also, if the property is not in good condition, you may need to spend money on the property before being able to sell, meaning the property could initially be a liability.
Gift subject to a life interest
The second common scenario with property is that a donor leaves the charity a property subject to a life interest. This is good for the donor, as they will be happy that his/her family/friend is provided for throughout their lifetime.
There are however difficulties that can arise with this arrangement.
There will be a delay in the charity obtaining its interest. Therefore it is vital good records are kept. We have seen instances where it has taken 50 years for the interest to pass to a charity. In one instance, as the gift related to an unregistered plot of land next to a house which had not been left to the charity, by the time it was realised that the gift should transfer, there was an adverse possession claim being made for the land. Good record keeping and keeping track of any gifts would have avoided such a situation.
There are also matters regarding the maintenance of the property in the interim given the long term interest the charity has in the property and also reputational matters regarding such maintenance. A charity may have to balance their legal obligations with the wishes of the life tenant. In one instance, a life tenant was an old lady and who did not want work carried out to the property unless really necessary as she did not want to be disturbed, but certain work was essential.
There are options open to charities in the instance of such remainder gifts, which give the charity a chance to realise the value of such a gift early. The first involves winding up the trust of land, with the property then either sold to the life tenant or, if he or she does not wish to take up occupation, the sale of the property with the proceeds split between the parties based on actuarial valuations (with a quick succession relief on the charity’s side). The other option is to sell the remainder interest in the property, which may be possible depending on the terms of the trust and the property involved.
Jamie Huard is a member of BWB’s Charity Legacies & Disputes team, which specialises in advising charities on legacies and associated disputes. We have a wealth of experience to draw on, meaning quick and competitively priced advice for our clients, taking into account all relevant matters including financial pressures and reputational issues.
From advising on legacy fundraising and day to day legacy queries, to helping you deal with difficult legacies (including those involving property and company shares), challenges to the validity of Wills, problems with executors and their fees, proprietary estoppel claims, and claims under the Inheritance (Provision for Family and Dependents) Act 1975, our team provides a full legacy-related advice service.
Posted on 31/05/2018 in Legal UpdatesBack to Knowledge