DCH 284 Institute of Legacy Management
Summary
S36 Charities Act 1993 provides a safeguard for charities selling
land they have bought or occupied. However, the section can also
catch land left to charities by Will, land in which the charities
have never sought to have a proprietorial interest. Compliance
with s36 in these circumstances imposes a significant and unnecessary
burden on charities and, in certain situations, upon Personal
Representatives of estates. The Institute recommends very strongly
that the Charities Bill should now incorporate an amendment to
s36 to specifically exclude land left to charities by Will.
The role of the Institute
The Institute of Legacy Management (ILM) was set up in 1999 to
provide training and support for Legacy Officers in charities.
It has some 340 individual members, who work for over 250 charities.
The Institute provides a qualification in legacy administration,
a range of day and half-day courses and conferences and symposia.
Via its website, ILM also provides factsheets for members and
solicitors.
ILM has just published, with the Law Society, 'Charities as Beneficiaries'
for solicitors and works also with the Society of Trust and Estate
Practitioners (STEP) and the British Bankers Association to enhance
standards of probate administration. For further information
about the Institute, visit www.ilmnet.org.
The legislation
Prior to the 1992/3 Acts, s29 Charities Act 1960 related to land
held by or in trust for a charity and provided that no disposition
of either property forming part of the permanent endowment of
land held by or in trust for a charity which had been occupied
for the purposes of the charity could be sold, leased for
more than 22 years, mortgaged or charged as security for repayment
of money borrowed unless with the consent of the court or the
Charity Commission. (The underlining is ours).
Thus land left to charities under Will was not subject to the
Act. This would seem appropriate, for land left under Will is
land that a charity has never sought to own for its own purposes,
much less occupied. As part of residue, it is simply one of many
assets in an estate which must be administered by the PRs.
Section 32 of the 1992 Act superseded the 1960 Act and imposed
an overall prohibition on the disposal of land held by
or in trust for a charity without an order of the court or the
Charity Commission. The section was repealed and re-enacted without
alteration as section 36 of the 1993 Act.
When does s36 apply to land left by Will?
In the past few years, charities and solicitors have become increasingly
uncertain as to precisely in which circumstances s36 would apply
to land left by Will and who bears the responsibility for compliance.
Decisions of the Charity Commissioners, Volume 4 (September
1995) clarified whether in it necessary for personal representatives
to comply with s36 & s37 of the Charities Act 1993 regarding
the sale of land left in wills to charity. In the Commissioners'
view, in relation to sales of land left in wills to charities,
either as specific devisees or residuary legatees, it was not.
There appeared, then, to be no problem if property was sold in
the course of administration of the estate. However, charities
began to question what happened, for instance, where a will trust
including land fell in and the will trust passed to charities
absolutely. A number of further problems then emerged, on which
legal advice has been not consistent. Indeed, legal advice to
at least one major charity has been that, for safety, its Trustees
should comply with S36 in every case in which land is included
in residue from which it benefits.
The problems
Firstly, definitions of when the administration is complete vary.
The legal definition relates to the publication of estate accounts
and final distribution to beneficiaries. However, the Inland
Revenue, for Capital Gains Tax purposes, prefers the test of whether
residue has been ascertained as the moment when a beneficiary
becomes the chargeable owner of an estate asset. This is crucial,
for if the property has gained in value since death (as has been
the case some years for the majority of property pasing by Will),
the charity's share of the proceeds may be subject to CGT if the
PRs have not taken action to appropriate or transfer beneficial
or legal interest.
Secondly, if the charities do request the PRs to appropriate the
beneficial interest in order to use their charitable CGT status,
it was unclear if the sale was caught by s36, and if so, who was
responsible for compliance - an address to Charity Legacy Officers
by a representative of the Charity Commission in May 2003 indicated
for the first time that it could be the PRs. What if residue is
shared between charities and private individuals (e.g. family
members)? Who has responsibility for gaining the surveyors' report
on valuation and marketing, and paying for it, the PR's or the
charities, and is it for the charities' Trustees to confirm that
the Act has been complied with in relation to the disposal, or
the PRs? These are just a few of the issues that have come up
in recent months and which we have tried to clarify in factsheets
prepared with the help of the Charity Commission.
The current situation
ILM has recently sought to obtain an Opinion from Christopher
McCall QC to clarify these issues. As we have had to revert to
Mr McCall on a number of points before he is able to issue a final
Opinion and to settle a factsheet, we have been delayed in putting
forward this submission. Whilst Mr McCall's draft Opinion offers
some clarification as to responsibilities and procedures, there
remain a number of concerns. One of these is illustrated by the
following situation.
Responsibility for compliance re. appropriation to mitigate
CGT
Barclays Bank is Executor in a case where there has been substantial
gain on a property since death and they have recently understood
that the McCall Opinion will put the responsibility for compliance
with s36 on the Executors. The Head of Barclays Fiduciary Standards
believes that the onus of the responsibilities and risks associated
with s36 procedures is not one that the Bank would wish to take
on and that the Bank does not think that realistically charities
can expect executors to accept this burden. If Executors do not
take on the responsibility in this frequently-encountered circumstance,
charities are faced with either having the property transferred
to them for sale in order to use their CGT exemption, which may
introduce responsibilities and liabilities that it would be unreasonable
to take on, or losing out on the CGT exemption, potentially several
millions of pounds a year to the charity sector in lost legacy
income. There are additional problems here if more than four
charities share residue - property cannot be assented to all.
This illustration is but one of a number of concerns regarding
the application of s36 to deceased's estates which are now bringing
real problems and burdens to charities notwithstanding the draft
Opinion from Counsel. We have described the situation at some
length in order to underline the level of our concern. We look
forward to discussing the situation in detail in due course to
assist the drafting of the Bill.
July 2004
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