Ensure your beneficiaries can't ignore your wishes - Spear's Magazine

Ensure your beneficiaries can't ignore your wishes

Leaving a gift in your will doesn't have to mean simply hoping that its conditions will be respected, says Clare Mackay

In her will, Lavinia Rhead left the Royal Society for the Protection of Birds 20 acres of farmland in Cheshire on the basis that the land 'should not be built upon'. Despite this, the RSPB is now proposing to sell the land to a property developer, which could see 150 houses constructed on the site. The RSPB says that the land as it stands 'is not really beneficial to wildlife' and believes that the proposed development could promote and enhance the biodiversity of the area.

No doubt Mrs Rhead did not have a housing development in mind when she bequeathed her land to the RSPB. What steps could Mrs Rhead have taken to ensure that her wishes were respected?

> A conditional gift of the land. Gifts can be made subject to a condition subsequent. By doing so, the interest in the land ends if a specific condition is met. If that condition is not met, the interest is intended to last indefinitely.

Mrs Rhead could have made the gift to the RSPB subject to the condition that if the RSPB sought to build upon the land, the charity's interest would come to an end and the land would then be held on trust for a contingent beneficiary, such as a family member or another wildlife charity. The RSPB would acquire what is known as a defeasible absolute interest in the land. This means that it would be entitled to the land unless it sought to develop it, in which case the interest in the land would then pass to the contingent beneficiary.

Careful drafting would be needed because of the rule against perpetuities. This requires interests in property which do not take effect immediately to vest within a defined period of time (known as the perpetuity period). The perpetuity period for trusts in wills made today is 125 years.

> A determinable interest in the land. A determinable interest is one which is only intended to last while a condition is met or one which is only intended to last for a certain time and end when a condition occurs.

Mrs Rhead could have created a trust to hold the land for the RSPB for so long as it remained in its undeveloped state as farmland. The RSPB's interest would only last for as long as that condition remained fulfilled. If the condition ceased to be met, the land would then pass to a named contingent beneficiary.

A determinable interest would give the RSPB an interest in the land (as Mrs Rhead wished) but only for as long as it remained in its present state as open farmland. Again, careful drafting of such a gift would be necessary to ensure that the gift was not void for perpetuity.

> A permanent endowment in favour of the RSPB. A permanent endowment enables property to be held by a charity on the basis that the trustees of the charity only have the power to spend the income from the property for the purposes of the charity – this prevents them from disposing of the underlying capital asset.

> A discretionary trust supported by a letter of wishes. Mrs Rhead could have settled the land into a discretionary trust with a letter of wishes, in which she could have stated that the RSPB could have use of the land for a period of years unless they sought to develop it. While trustees usually do follow the wishes of the settlor, they are not bound to do so and this would not guarantee the outcome that Mrs Rhead desired.

Whichever route is chosen, care should be taken to ensure that such gifts are made in a tax efficient way and without inadvertently triggering tax liabilities. Specialist advice should be sought to ensure that not only will the donor's intentions be respected but that unexpected tax difficulties do not arise.

Clare Mackay is an associate at SA Law



 

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