Litigating the Proper Allocation of a Charitable Bequest in NSW

Introduction

For any charity in NSW, a charitable bequest represents a vital component of long-term funding and a donor’s estate plan. Unfortunately, these essential gifts in wills can become the subject of complex legal disputes, exposing a not-for-profit (NFP) to litigation that threatens to undermine the donor’s original intentions and the charity’s financial stability.

This guide addresses the common legal challenges and potential pitfalls that arise when a charitable gift is contested. To properly manage these situations, it is crucial for a charity to seek legal advice from an experienced NFP lawyer to protect its interests and ensure the bequest is honoured as intended.

Understanding Specific & General Purpose Gifts for Your Charity

The Legal Distinction Between Specific & General Purposes

When a charity receives a bequest, the terms of the will determine how the funds can be used. A gift may be designated for a specific purpose, meaning it is restricted to a particular project or use, or it can be for a general purpose, allowing your organisation to apply it where the need is greatest.

For a charitable bequest to be legally valid in NSW, its purpose must align with the established common law definition of charity. This definition is traditionally categorised under the “Four Heads of Charity,” which were established in the case of Special Commissioners of Income Tax v Pemsel [1891]. These categories are:

• The relief of poverty
• The advancement of education
• The advancement of religion
• Other purposes beneficial to the community

A gift will generally fail unless it is devoted solely to a charitable purpose. However, legislation in New South Wales provides a safety net. In cases where a gift has both charitable and non-charitable purposes, the non-charitable element can be severed, ensuring the bequest is still applied to its intended charitable cause.

How General Charitable Intention Can Save a Bequest

A significant pitfall in charitable giving occurs when a specific bequest is at risk of failing. This often happens if:

• The named charity has ceased to exist
• The charity has changed its name
• The specific purpose has become impossible to fulfil

According to the “lapse rule,” a gift to an entity that no longer exists at the time of the donor’s death will lapse and fail.

However, the courts in NSW can save such a gift if a “general charitable intention” can be demonstrated in the will. This exception to the lapse rule applies if two key conditions are met:

• The person who made the will had a general intention to support a charitable cause.
• The intention was to benefit a charitable purpose through the work of the named entity, and that purpose can still be fulfilled.

The court will assess whether the donor’s primary aim was to support a specific organisation exclusively or to advance a broader charitable object.

For instance, in Re Thompson; Lundstrom v AG [2006], a gift to the Victorian State Opera, which had deregistered, was saved because the court found a general intention to support opera. Conversely, a gift may not be saved if the will’s wording is so detailed and specific that it excludes any broader charitable intent.

To avoid these potential pitfalls and ensure a donor’s wishes are honoured, it is crucial to seek legal advice from a solicitor specialising in wills and estate planning who can draft the will with precision.

Common Dispute Scenarios & The Ambiguity Trap for NFPs

The Ambiguity Trap & Misnamed Beneficiaries

A common pitfall in charitable giving occurs when a will fails to correctly identify the intended charity, creating what is known as the “ambiguity trap.” This issue often arises because:

• Charities change their names,
• Charities merge with other organisations, or
• Charities are registered under a different legal name than the one they are publicly known by.

When a will contains an incorrect name, the charitable bequest is at risk of failing. This can lead to confusion and potentially costly legal proceedings to determine the donor’s true intention.

The case of Banwell v Attorney-General [2020] QSC 239 illustrates this problem clearly. The will in question left gifts to several charities, but:

• Some of the names used were not in existence at the time of death,
• Others had changed.

For example, a gift to the “Princes Alexandra Hospital” was problematic as the hospital was not a legal entity in its own right. Similarly, a bequest to the “National Heart Foundation” was ambiguous because nine different registered entities included that name.

This ambiguity forces the estate’s administrators to seek guidance from the court. This process can be both time-consuming and expensive, ultimately reducing the funds available for beneficiaries.

To avoid this potential pitfall, it is crucial to seek legal advice from a solicitor specialising in wills and estates. An expert can ensure your estate plan is drafted with precision, confirming the correct legal names and details of your chosen charities so your charitable gift reaches its intended recipient without complication.

Restrictive Conditions & The Cancer Ward Scenario

Disputes can also arise when a donor places overly restrictive conditions on a charitable bequest in their will. While the intention is often to direct the funds toward a specific purpose, such as a gift designated solely “for the cancer ward,” this can create significant administrative burdens for the NFP organisation receiving the gift.

Rigid wording can legally compel the charity to establish a completely separate charitable trust to manage the funds. This process introduces substantial operational challenges and costs that may outweigh the value of the original bequest. The charity would be required to:

Operational Requirement	Description
ACNC Registration	The new trust must be registered with the Australian Charities and Not-for-profits Commission (ACNC).
Separate Governance	The trust is required to maintain its own separate financial statements and governing documents.
Annual Audits	The new trust must undergo separate annual audits, adding to compliance costs.
Distinct Investments	A distinct investment strategy must be established and managed specifically for the new trust.

To prevent these issues, best practices encourage open dialogue between donors and their chosen charity. Discussing the purpose of a gift allows the NFP to honour the donor’s wishes while maintaining the flexibility needed to administer the funds effectively.

Encouraging a non-binding statement of wishes, rather than rigid conditions in the will, is an effective way to guide the use of the charitable bequest without creating unnecessary legal and financial overhead for the charity.

Utilising the Cy-Près Doctrine under the NSW Charitable Trusts Act

When the Original Purpose Is Impossible or Impractical

The cy-près doctrine, derived from French law and meaning “as near as possible,” permits the terms of a charitable bequest to be altered when the original purpose cannot be fulfilled. In NSW, a cy-près scheme can be initiated under the Charitable Trusts Act 1993 (NSW) if a charitable gift’s original purpose has become impossible, impractical, or is no longer relevant due to changing circumstances.

A court will consider applying a gift cy-près in several situations, particularly when a will contains a charitable bequest for a purpose that can no longer be carried out precisely as the donor intended. Common scenarios include:

• A gift is made to a charity that was named incorrectly in the will.
• The intended charitable organisation ceased its operations before the estate could be distributed.
• A trust was established for a specific group of people that no longer exists.
• The circumstances make it impossible to set up the charitable trust as described in the will.

In these cases, the court examines the will to determine if the donor had a general charitable intention. If such an intention is found, the gift may be saved from failure and applied to a similar charitable purpose rather than lapsing.

The Role of the Supreme Court in Changing Bequest Purposes

The Supreme Court of NSW is empowered by the Charitable Trusts Act 1993 (NSW) to modify the terms of a charitable trust. To begin this process, an application must be made to the Court, presenting evidence that the original charitable purpose of the trust is no longer viable. The application must also demonstrate that a cy-près scheme is necessary to ensure the trust’s objectives are still met.

After reviewing the evidence, the Court may issue a cy-près order to alter the trust’s terms. This may include appointing a new trustee to manage the funds according to the modified purpose.

It is important to recognise that these applications can be complex and expensive, often requiring a significant amount of evidence to be brought before the court. Given these complexities, it is crucial for an NFP organisation to seek legal advice from a solicitor experienced in this area. Consulting with a lawyer is essential before initiating a cy-près scheme, as this helps ensure the best possible outcome for your charity and honours the donor’s charitable giving intentions.

Identifying Who Can Sue & The Role of Legal Authorities

The Involvement of the NSW Attorney-General in Disputes

When a charity dispute arises over the validity or allocation of a charitable bequest, the NSW Attorney-General often becomes a necessary party to the legal proceedings. This involvement is especially crucial in cases where:

• A will contains ambiguity
• The charitable purpose is unclear

The Attorney-General represents the public interest in ensuring charitable gifts are properly administered.

Case law demonstrates this role clearly. For example:

Case	Summary of Attorney-General’s Involvement
Banwell v Attorney-General [2020] QSC 239	The Attorney-General was involved to help the court gain guidance on distributing a charitable gift where the intended beneficiaries had been misnamed in the will.
AG v Cahill & Ors [1969]	The Attorney-General participated in proceedings to determine whether a specific bequest qualified as having a valid charitable purpose under the law.

The Attorney-General’s participation helps the court interpret the donor’s intentions and protect the integrity of charitable giving in NSW.

The Role of the Australian Charities and Not-for-profits Commission in Governance & Compliance

The ACNC plays a key role in the governance and compliance surrounding a charitable bequest. While the ACNC does not typically intervene in will disputes directly, its regulations become critical when:

• A bequest’s conditions impact a charity’s operations
• A highly restrictive gift in a will legally requires an NFP to establish a separate charitable trust, which must then be registered with the ACNC

Furthermore, under ACNC Governance Standard 5, a charity’s board members, known as “Responsible Persons,” have a legal duty to manage the organisation’s financial affairs responsibly. This duty extends to the proper oversight of all funds received from an estate plan, ensuring they are used to further the charity’s purpose.

Given these complexities, it is essential for an NFP to seek legal advice from a solicitor to ensure compliance and protect its interests.

Managing Litigation Risks from Family Provision Claims Against Your NFP

When Family Members Challenge a Charitable Gift

A significant litigation risk for any NFP arises when a donor’s family members contest a charitable bequest. Under the Succession Act 2006 (NSW), certain eligible persons can make a family provision claim against the estate if they believe the will does not make adequate provision for their proper maintenance and support.

An eligible person, such as a spouse, child, or dependant, can challenge the will on several grounds. While the most common reason is insufficient provision, other grounds for contesting a charitable gift include:

Grounds for Contesting a Will	Description
Lack of testamentary capacity	This occurs when the person making the will lacked the mental capacity to understand its implications at the time of its creation.
Undue influence	This suggests the donor was coerced or improperly pressured into leaving the charitable bequest against their own free will.
Fraud or forgery	This involves claims of deception or falsification related to the creation or signing of the will document.

When these claims are made, courts often prioritise the needs of family members over the charitable intentions of the person who made the will.

The Impact of Family Provision Claims on Your Bequest

Family provision claims can have a substantial financial impact on your charity, often resulting in the organisation coming off “second or third best.” Even if the claim does not entirely nullify the gift, it can significantly reduce the amount your NFP receives from the estate plan.

For instance, a bequest of $225,000 to various charities was reduced to $150,000 after an estranged daughter successfully sued for further provision.

Many of these disputes are resolved through informal settlements or commercial mediation, making it difficult to quantify the total value of charitable giving lost each year. Faced with potential legal costs and negative publicity, charities may be reluctant to defend a bequest vigorously.

However, seeking legal advice from a solicitor is crucial. An experienced lawyer can help your charity defend the gift, represent your interests at mediation, and ensure the donor’s original intentions are honoured as much as possible.

Strategic Considerations & The Importance of Hiring a Lawyer

Weighing the Costs & Reputational Risks of Litigation

Before engaging in litigation over a charitable bequest, your NFP must carefully weigh the potential drawbacks. Court proceedings are expensive, and even if your charity is successful, it is rare to recover the full amount of legal costs incurred.

Litigation also consumes valuable time and resources, which can divert staff and volunteers from focusing on your organisation’s core mission.

Beyond the financial impact, litigation can pose a significant risk to your charity’s reputation. Aggressively pursuing a matter in court may be perceived by the public as a misallocation of charitable funds. This can attract unwanted media scrutiny, sometimes referred to as the “Streisand Principle,” where an attempt to resolve an issue privately results in widespread negative attention.

The Value of Expert Legal Advice for Your Charity

Seeking specialised legal advice is a critical step in managing a charitable gift and protecting your NFP’s interests. An experienced solicitor can help ensure a will is drafted with precision, which helps to avoid common pitfalls such as the “ambiguity trap” that can arise from a misnamed charity.

This proactive approach helps prevent the loss of “missing gifts” from an estate plan.

A lawyer can also provide essential support when a charitable bequest is challenged. They can:

• Help your charity vigorously defend the gift against family provision claims
• Represent your interests in mediation
• File evidence to support the donor’s intentions

For complex legal processes, such as a cy-près application, consulting a solicitor is crucial to ensure the best possible outcome for your organisation and to honour the donor’s charitable giving.

Conclusion

Managing a charitable bequest in NSW requires careful attention to legal details, from avoiding ambiguity in a will to defending gifts in wills against family provision claims. Understanding these potential pitfalls is essential for any charity to ensure a donor’s intentions are honoured and their estate plan is fulfilled.

To help your NFP manage these important charitable giving matters with confidence, contact LawBridge’s expert not-for-profit lawyers today. Our specialised legal advice helps charity boards handle the complexities of a charitable bequest and protect their mission.

Frequently Asked Questions