The recent Supreme Court decision of Re Graham (deceased)1 concerned a charitable gift in a Will and how it should be dealt with. The unusual feature of this case was that the charity in question had been deregistered after the deceased’s death and therefore after the gift had already taken effect.
The question for the Court was whether the charity in question had ceased to exist or whether its work and operations could properly be said to have merged into, or amalgamated with, another charity such that it continued to exist, albeit it in a different form.
Background
Mr Graham died on 21 June 2016. Relevantly, his Will gifted half the residue of his estate (approximately $900,000) to the Stroke Association of Queensland Inc. (SAQ) for its general purposes. A problem arose because although the SAQ existed when the Will was made and when Mr Graham died, its registration as an incorporated association was cancelled before the administration of the estate had been finalised. Mr Graham’s executor sought an order that the gift to the SAQ be construed as a gift to an organisation named Synapse Australia Ltd (Synapse) on the basis that it was the successor of the SAQ.
Given that the gift had already vested (that is, taken effect), if the SAQ had ceased to exist, the gift would need to be applied to objects cy-près. If the SAQ had not ceased to exist though, effect could be given to the gift by paying it to Synapse.
The matter first came on for hearing in September 2019. Synapse supported the executor’s application. The Attorney-General also appeared and submitted that Synapse was not the successor of the SAQ. The hearing was adjourned and directions given that four other charities be served with the material. The matter came back before the Court in February 2020. Two of the four charities served, namely the Stroke Recovery Trial Fund Ltd (SRTF) and the National Stroke Foundation Ltd (NSF) made submissions consistent with those of the Attorney-General.
The evidence
Mr Graham made his last Will in May 2015. He instructed his solicitor that he wanted to leave half of the residue of his estate to a stroke charity. After some research by the solicitor, Mr Graham selected the SAQ.
Synapse was formerly known as the Brain Injury Association of Queensland Inc (BIA). The relationship between the SAQ and the BIA (now Synapse) began in about 2012 when the SAQ began renting part of the BIA’s premises. At about the same time, the State government ceased funding the SAQ causing its continued operation to become financially untenable. In December 2015, the SAQ held an annual general meeting (the AGM) at which motions were passed that the SAQ “be wound up during the next months” and that its assets and liabilities be transferred to the BIA.
On 30 June 2016 (this being nine days after Mr Graham’s death), the SAQ and the BIA entered into a Deed of Gift (the Deed), which provided that the SAQ gifted to the BIA those of its assets and liabilities outlined in a schedule to the Deed. The schedule listed items of office furniture, as well as a bank account holding approximately $3,000.
The SAQ’s registration as an incorporated association was subsequently cancelled in September 2016. At all times leading up to its deregistration, the SAQ was unaware of the gift in Mr Graham’s Will.
Submissions and findings
Mr Graham’s executor submitted that the resolutions passed at the AGM had the effect of transferring the SAQ’s entitlement under the Will to Synapse. The Court rejected that submission because the gift in the Will did not come into existence until Mr Graham’s death in June 2016.
Mr Graham’s executor and Synapse also submitted that the Deed could be construed as a gift from the SAQ to Synapse of all its assets, even potential future assets such as the gift in the Will. The Court disagreed finding that the operation of the Deed was confined to the items listed in its schedule.
Mr Graham’s executor and Synapse further submitted that the gift in the Will should be paid to Synapse on the basis that it was the SAQ’s successor. In this regard, the executor and Synapse focussed their attention on the “lapse rule” and one of its exceptions. Simply put, the lapse rule is that a gift to a charity that ceases to exist before the testator’s death will ordinarily lapse. An exception to the lapse rule arises where another charity, which has taken over the named charity’s work, exists at the date of death and can properly be regarded as its successor and the intention of the Will-maker was wide enough to allow the gift to take effect in favour of the successor. The Court however found that focus to be inapt. Citing the case of Hicks v Mater Misericordiae Ltd2, the Court observed that there is a distinction to be drawn between the situation that applies where the relevant institution ceases to exist in the Will-maker’s lifetime (initial impossibility) and the situation that applies where the relevant institution ceases to exist after the gift has taken effect (supervening impossibility). In the latter case, the Court will apply the gift to objects as near as possible to those of the extinct institution. This reflects the general principle that, once devoted to charity, a gift cannot be applied for any other purpose or person and there is no lapse. The gift is applied cy-près because it has taken effect for a charitable object, even if it has yet to become payable or has not yet been paid.
Decision
On the evidence before it, the Court found that it could not be said that Synapse was the SAQ’s successor and that the SAQ had ceased to exist from the date of its deregistration. Accordingly, it was determined to be appropriate that the gift be applied cy-près. Each of Synapse, the SRTF and the NSF submitted that they were appropriate objects of a cy-près scheme. The Court adjourned the proceeding for the purpose of determining how the gift should be applied between the three competing charities. In our next alert, we will discuss the Court’s subsequent decision in the cy-près application and the cy-près doctrine more generally.
Takeaway points
The timing of events in this matter was certainly unfortunate. Had the SAQ been aware of Mr Graham’s generous gift, things could well have turned out very differently. This case demonstrates:
- the value of charities and their benefactors staying in regular contact and, only where desired by the benefactor, of informing chosen charities that gifts have been left to them in a Will; and
- the importance of executors promptly notifying charities (as well as other beneficiaries) of their entitlements in a Will. It is unfortunately not uncommon for us to encounter situations where beneficiaries have not been informed about their entitlements for several months, even years.
Will-makers may wish to consider discussing with their chosen executors the importance of promptly notifying charitable beneficiaries about their entitlements. Conversely, charities may wish to consider adding information to their websites and fundraising material to inform their existing and potential donors that it would be helpful to be informed that a gift has been left to them in a Will because, without this knowledge, there may be adverse consequences for the relevant charity in the future.
If you would like advice or assistance regarding charitable gifts in a Will, please contact our experienced Estates and Succession team.
1 [2020] QSC 27
2 [2017] QSC 38