RSPCA wins legacy dispute but at what cost?
It may feel like it has been in the news forever, but the court battle fought by the RSPCA in RSPCA v Sharp has finally been won. But is it a bitter-sweet win for this charity?
In February 2010 the High Court had ruled against the Society in the case RSPCA v Sharp and others. In January 2011, the Court of Appeal unanimously upheld the RSPCA's appeal. But at what cost to their reputation has the RSPCA won?
The background
Mr Mason left 'the maximum' that can be left 'free of tax' to his friends, Mr and Mrs Sharp (78 per cent) and his brother, John (22 per cent) and he bequeathed his house in Gosport worth £169,000 to the Sharps. He left his residuary estate to the RSPCA (which, as a charity, is exempt from inheritance tax).
He died in 2007, when the inheritance tax threshold was £300,000.
Inheritance tax is charged on all gifts once that threshold is passed (excluding, importantly, gifts to charity, spouses or civil partners).
Mr and Mrs Sharp and John Mason claimed the words 'maximum free of tax' (written in the Will) meant that they were entitled to a percentage share of £300,000 (the limit for Inheritance Tax), irrespective of the house value, even though, when combined, this triggered inheritance tax. In other words, Mr and Mrs Sharp claimed £234,000 plus the house, and John Mason £66,000 (totalling £469,000). If their interpretation was correct, that also meant a windfall of £112,000 for HMRC, out of the estate.
Solicitors to the RSPCA advised that the Sharps should receive £102,180 plus the £169,000 house, and John Mason, just under £29,000 (totalling £300,000).
Although attempts were made to avoid litigation the Sharps' solicitors said they would distribute the assets on their basis.
In February 2010, Justice Peter Smith ruled against the RSPCA, and refused permission to appeal. In court, he criticised the RSPCA's argument as imposing a tax burden on Mr Mason's 'relatives and friends' despite the RSPCA's argument being that there should be no inheritance tax.
This quote was picked up by the online media, causing a backlash against the charity. Indeed many considered that charities should 'accept what they are offered' rather than feeling that they have a right to litigate.
A change of heart
But later on, Lord Justice Rimer later gave permission to appeal. The Court of Appeal unanimously upheld the RSPCA's argument that its benefactor intended his estate to pass free of inheritance tax.
Lord Justice Patten said "the Will does not disclose a misunderstanding of inheritance tax, nor does it permit the clause to be construed [as the Sharps and John Mason] contend".
Implications for charities - What should trustees do when facing those disappointed that charity inherits at their expense?
Although charity trustees have an obligation to ensure that their charity receives the funds due to it, this case clearly proves that they must also consider their charity's reputation. The reality is that the media tends to focus on 'disappointed families' rather than viewing the charity as upholding their benefactors' wishes.
Although charity legacy income runs to hundreds of millions of pounds, the vast majority of charitable legacies are not contested. Of those that are, most disagreements are resolved out of court.
As Mark Watts, the RSPCA's chief executive said when commenting to the press about this case: "the RSPCA will continue to respect the wishes of its benefactors. It will not lightly surrender legacies left in good faith and in the belief that the funds will be used to combat cruelty to animals."
Provided charities can show they have responded sympathetically and sought to resolve matters constructively they should take comfort from this case and continue to uphold their benefactors' wishes.