Publications

Initial Failure of Testamentary Gifts

On 28 October 1990 Mr Harold Broadman a builder and carpenter late of Leura died leaving a wife, Myra “Mabs” Broadman, and a Will dated 5 December 1984.

In his Will, Mr Broadman directed that 95% of the residue of his $3.37 million estate be left to “The Cancer Research Foundation.” Surely The Cancer Research Foundation would have been thrilled by such a generous gift!

That is, if it existed.

Testamentary gifts may lapse or fail in circumstances where

1. the named recipient does not exist, or
2. the gift is impractical or insufficient for the stated purpose.

We examine each in turn.

Following Mr Broadman’s death his solicitor, Mr Whiting, “was unable to find anybody or any institution which had that name”. After an exhaustive search, Mr Whiting had no option but to commence proceedings in the Equity Division of the Supreme Court of New South Wales.

Three claimants came “out of the woodwork” to claim Mr Broadman’s gift:  Australian Cancer Research Foundation, The Melanoma Foundation and The Cancer Council. After endeavouring to “identify the beneficiary whom the testator has wished to benefit” Justice Young ordered that the gift be divided between the three claimants equally, such as it was after erosion by some 8 years of costs that the court ordered be paid out of the gift on an indemnity basis to all parties.

This case of Gray v Australian Cancer Foundation For Medical Research [1999] NSWSC 492 should serve as a warning for the need to ensure an organisation is correctly identified in a Will, not only for people giving gifts in their Wills, but for the recipient organisations.

A case where a testamentary gift failed in circumstances where the gift was impractical or insufficient for its purpose, is Cancer Council of Western Australia v Attorney General (WA) [2016] WASC 297. There Banks-Smith J addressed this issue, and added to our understanding of “statutory cy-près”.

By her Will dated 14 May 2007, the late “Mavis” Sands gave her vacant land to the Cancer Foundation of Western Australia Inc, provided the land be “utilised for a research facility or a clinic for the treatment of cancer and to bear the name “The Mavis Sands Clinic”.

Whilst the named organisation did exist (albeit under a new name), its focus was to provide funding to support cancer research performed by existing research facilities and to promote public education for cancer prevention, and did not have the resources to build or manage such a facility or clinic, particularly on land that was remote from the major hospitals where such highly specialised research and treatment typically occurs. Accordingly, the Attorney General (WA) applied to the Supreme Court seeking approval for a cy-près scheme pursuant to s7 Charitable Trusts Act 1963 (WA).

The doctrine of cy-près operates to avoid lapse and failure of a testamentary gift (or trust) by permitting the property to be applied ‘as near as’ the intended purpose.

In circumstances where a testamentary gift fails because it is impossible or impractical to achieve its original purpose, much turns on whether this failure occurs at the outset (“initial failure”) or at some later time when circumstances change and the purpose can no longer be carried out (“subsequent failure”).

Where there is initial failure of the original purpose, it is necessary to show the testator “manifested a general charitable intention” in order for the Court to approve a cy-près scheme:(the usual result being that residual legatees or next-of-kin are deprived of their expectations). Justice Banks-Smith found this intention in the terms of Mavis’ Will because Mavis’ Will contained other charitable gifts and the residuary was to be applied to charitable purposes. His Honour confirmed this step is not required in cases of subsequent failure, where existence of the requisite charitable intention is assumed by the Court.

In NSW, a similar statutory cy-près structure is provided by Charitable Trusts Act 1993 (NSW), s10(2) providing that “a general charitable intention is to be presumed unless there is evidence to the contrary in the instrument establishing the charitable trust”.

If your organisation receives or solicits bequests, we recommend that you publish and take regular audits of your standard suggested bequest wording to ensure it is providing helpful and effective guidance.

Here are a few things you should check:

1. Is your suggested wording readily and easily available on your website?
2. Does the wording contain your organisation’s full name, ABN and address?
3. Does the wording adequately disclose the purposes for which your organisation can apply bequests?
4. Does the wording provide guidance on how to make a:

(a) general purpose bequest (e.g. “I give $[AMOUNT] to [ORGANISATION] for its general purposes”.)?
(b) specific purpose bequest for scholarships and bursaries? (e.g. “I give $[AMOUNT] to [ORGANISATION] to establish [SCHOLARSHIP/BURSARY] for [SPECIFIED AREA]”.)
(c) specific purpose bequest for research? (e.g. “I give $[AMOUNT] to [ORGANISATION] for research in the area of [INSERT AREA]”.)