Casework Guidance

B1 Caseworking key points

The Institute of Legacy Management have prepared, with the Commission's help, a factsheet which sets out how charities' legacy officers approach ex gratia payments.

• Where we receive a query about ex-gratia payments we will refer the enquirer to the guidance on our website.
• In most cases, ex-gratia payments will relate to the making of a gift from property already in the possession of a charity. However, occasionally, it can relate to the waiving of a charity's entitlement to property before it has been passed to the charity. Waiving a charity's entitlement under a Will may result in the property not going to the intended recipient because of the wording of the Will or the law of intestacy - in these cases case officers should seek legal advice. The wording of an Order granting authority to waive the charity's entitlement will also be slightly different.   
• In all but exceptional cases, we expect trustees to apply for authority to make an ex-gratia payment by submitting a completed online application form.
• When we receive a completed application form we will check that the form has been properly completed and that all of the necessary supporting information and evidence is included.
• Legal advice is always needed. Once it is confirmed that the proposed payment is an ex-gratia payment a member of the Legal SMT must be consulted. If it is likely that we might refuse to authorise the ex-gratia payment the Legal SMT member must consult the Chief Legal Adviser. 
• Once we have all the information and evidence we require we will decide whether or not to authorise the trustees to make the ex-gratia payment.
• If we decide to authorise the making of the payments we will provide this authority by s106 Order.
• If we refuse to grant authority we will inform the applicant of the right to apply directly to the Attorney General for authority.   

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B2 Advising trustees who are considering making an ex-gratia payment

If we are approached to advise regarding any aspect of ex-gratia payments by charities we should refer the enquirer to:

• our ex-gratia payments web guidance,
• Ex-gratia payments by charities (CC7),
• Ex-gratia payments by charities (case examples), and 
• the online application form.

This guidance will help the enquirer to understand what is, and is not, an ex-gratia payment. Having considered this guidance, if the trustees are satisfied that the proposed payment is an ex-gratia payment requiring our consent, the trustees should apply for this authority by submitting a completed online application form.

Model text to deal with an opening enquiry is available at G1. 

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B3 When we receive a completed application form 

B3.1 Initial checks 

As with all correspondence, we should consider the completed form against our Risk Framework. An ex-gratia payment case might carry an increased risk because of:

• the use of charitable funds for non-charitable purposes,
• the element of private benefit attached to the case, and/or
• the possibility of dispute or legal action.

Before we take the case forward we should also check to see if there is any reason to question the validity of the application (for example, is the application made by someone who stands to benefit from the payment). If there is, we should contact the charity's named correspondent to ask if the application is validly made. If it is not, we should inform the applicant and close the case.

Where the form has been submitted properly and before we consider the contents of the form, we should check the charity's governing document. If this is an Act of Parliament, we may not be able to authorise an ex-gratia payment by s106 Order. If the Act governing the charity prohibits the disposal of the charity's assets, we may need to make a Scheme under s73 of the Charities Act or the Act governing the charity may need to be amended.

Caseworkers should take legal advice if the application relates to a charity governed by Act of Parliament.   

Once we are satisfied that the application is genuine, and that the proposed ex-gratia payment could be authorised s106 Order, we should check that the form is completed fully and that the submission includes all of the evidence necessary to consider the case. If any information or evidence is missing we should ask the applicant to provide this before we consider the case further.  

B3.2 Recording the case in CRM & Register Plus

Once we have established that the application is validly made we must record the case in CRM.

Our policy is that, where the ex gratia payment relates to a gift made in a will, we will record this by creating a Non-Charitable Organisation in Register Plus called 'The bequest of FULL NAME deceased', opening a case in CRM under this NCO and connecting the charity to this case. If more than one charity is applying for consent this can also be connected to the case. Using this convention will mean that the case is easily found in CRM, this is particularly important as most ex gratia payment cases relate to the larger charities so it is often hard to find the ex gratia case in the charity's case list.

When we receive a completed application form, we should first of all search Register Plus/CRM to see if the NCO and case have already been created, we should pay particular attention to this where the applicant has indicated that there is more than one charity that is intending to apply for authority. If the NCO and case already exist, we should connect the charity to the case then conduct the case in the usual way. If there is no NCO under the name of the bequest we should create this, open the case and connect the charity.

Where the ex gratia payment does not relate to a gift made in a will we should open a case against the charity.

Once we have opened the case we must make sure that we record the appropriate issue codes and, once the case is complete, record any powers used.

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B4 Considering the contents of the form

B4.1 Has the decision to apply for authority been properly taken by the trustees?

Before we look at the contents of the form, we must first of all make sure that the trustees of the charity are agreed that they are under a moral obligation to make the payments. The trustees need not be unanimous in their decision to apply for authority but the decision must be taken in accordance with the voting provisions in the charity's governing document. Because the decision to apply for authority is based on the trustees feeling under a moral obligation to make the payment this decision cannot be taken by anyone other than the whole body of trustees.

The form asks the applicant to upload a copy of the minutes of the meeting at which the decision was taken. We should check the minutes and, if it appears that the decision has not been properly taken in accordance with the charity's governing document, we should contact the applicant to seek clarification. Only when we are satisfied that the decision has been properly taken by the trustees will we consider the contents of the application.

B4.2 Is the proposed payment a genuine ex-gratia payment requiring our authority?  

While the form is designed to filter out any payments that are not genuine ex-gratia payments, it is possible that a form might be submitted where the applicant has misunderstood the early questions and has submitted the completed form even though our authority is not needed. Before we continue with the case as an ex-gratia payment case we must ensure that the proposed payment is an ex-gratia payment requiring our consent. The criteria set out in E2, E3 & E4 should help caseworkers to make this decision. In addition to this, we should:

• check the charity's governing document to make sure that there is no power in the GD to make the proposed payment in furtherance of the charity's purposes,

and, if not, 

• consider the information provided to see if we agree with the trustees' assertion that they cannot justify making the payment as being in the interests of the charity by furthering its charitable purposes (ie, would this qualify, under s105, as being expedient in the interests of the charity?)

If we disagree with the trustees' assessment, we should advise the applicant of this (perhaps by issuing formal advice under s110) then close the case.     

Before we consider the case made in the application, we must consider whether or not the proposed payment is to settle or compromise a legal claim. A compromise is an agreement that a particular claim by one or more persons against one or more others should not be enforced in Court (or by any other relevant method, eg arbitration). Such an agreement usually involves the payment of an agreed sum by the person(s) allegedly liable to settle the claim to those making the claim (see OG516).

Caseworkers should take legal advice if it is unclear whether or not the proposed payment is an ex-gratia payment.

B4.3 What about small ex-gratia payments?

Where the amount of money involved is relatively small, say, £1,000 or less, the trustees may feel it would not be administratively sensible to apply for authority to make the payment. In such cases we are unlikely to challenge this. However, if we receive an application for authority for a small payment we will consider this in the same way as any other application.

B4.4 Is all of the necessary evidence attached?

Before we consider the case made in support of the application we must ensure that the applicant has attached all of the evidence we need to inform our decision. The type of evidence depends on whether or not the payment relates to a bequest from a will.

Will case 

The form asks the applicant to explain why the trustees feel under a moral obligation to make the payment and requires that the applicant uploads a copy of the minutes of the trustee meeting at which the decision was taken.

The form also sets out the other information we need to see, specifically:  

• the will of the deceased and certificate of probate
• the draft will or codicil (if applicable)
• details of the testator's true intentions
• details of why the testator was unable to change the will
• copies of any legal advice the trustees have taken relating to the payment
• (if the proposed payment is less than the full amount of the gift) an explanation as to why the trustees feel under a moral obligation to make a  payment of only part of the gift.   

If any of this information is missing and/or there is insufficient evidence to enable us to make a decision, caseworkers should take legal advice before asking for more information. This will ensure we ask for all the information we need to consider the case.

Non-will case

(See E3.2 for examples of ex-gratia payments not related to a bequest in a will). 

The form asks the applicant to explain why the trustees feel under a moral obligation to make the payment and requires that the applicant uploads a copy of the minutes of the trustee meeting at which the decision was taken.

We will also need details of the information that the trustees took into account when making their decision. We would usually expect this information to include: 

• details of the proposed payment and what it relates to
• details of why the circumstances of the case have led to the proposal to make an ex-gratia payment
• any evidence from the donor and/or third parties to back up the case
• copies of any legal advice the trustees have taken relating to the payment.  

If there is insufficient information or evidence to enable us to make a decision we should take legal advice to ensure that we ask for all of the additional information we need to enable us to consider the case.

B4.5 Additional checks where there is more than one charity involved 

Where a gift has been made to more than one charity, and the trustees of each of the charities feel a moral obligation to make an ex-gratia payment, we will need an application and relevant evidence from each of the charities. The charities can, of course, authorise a single applicant to apply on behalf of all of the charities. Where this is the case, it should be clear from the supporting documentation that each of the charities has approved the proposal to apply for consent, but if there is any doubt about the validity of an application we should contact the relevant charity's named correspondent to check that the trustees want to go ahead with the application.

There may be cases where a gift has been made to more than one charity where the trustees of some, but not all, of the charities feel under a moral obligation to make the payment. We will consider the case using the same criteria as we would any other case and can authorise a payment by the charity that has applied. Because the decision to make an ex-gratia payment relies on the trustees feeling a moral obligation to do so it is reasonable that some trustees may feel differently to others. 

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B5 Making our decision 

B5.1 Considering the case

The decision whether or not to authorise an ex-gratia payment can be taken by an Authorised Officer in accordance with our Authorised Officer policy set out in OG702. We must only make our decision after taking into account the relevant Human Rights and Equalities legislation. The legal adviser on the case will provide further information (and see OG71 and our Equality Act web guidance).   

Caseworkers must take legal advice whenever we are asked to authorise an ex-gratia payment. Before making our decision we must always bear in mind that we are being asked to authorise the use of a charity's funds for a non-charitable purpose but it is the trustees' belief that should lead our decision. If the trustees confirm that they feel under a moral obligation to make the payment, and where we are satisfied that the payment is an ex-gratia payment requiring consent, it is unlikely that we would refuse to give this consent. (Although we may want more information before making our decision if we are unclear on any of the relevant matters.) That said, we must consider the evidence provided to ensure that the trustees' decision is one which is within the range of decisions that a reasonable body of trustees might take and only make our decision once we have done this.

Caseworkers must take advice from a member of Legal Services SMT when considering whether or not to authorise an ex-gratia payment. If it is likely that we might refuse to authorise the payment, the Legal Services SMT member should consult the Chief Legal Adviser. A decision under s106 of the Charities Act cannot be appealed to the Tribunal but a refusal can be appealed by making a fresh application to the Attorney General. It is important that we consider the case as a whole when making our decision and properly record the reasons for our decision on the case file.

Our consideration will vary depending on whether or not the payment relates to a bequest in a will.

Will case 

We are likely to consider:

The will of the deceased. To check that the information provided by the trustees in the application about the terms of the will is accurate.

Evidence of the testator's true intentions. This might be a draft will or unexecuted codicil, either of which can usually be taken as an indication of the possible intentions of the deceased (providing there is a credible explanation of why the documents were not brought into effect). Other evidence might be written statements (by statutory declaration or otherwise) from the solicitor of the deceased, or other independent people who were aware of the intentions of the deceased, or anything in writing left by the deceased showing their true intentions.

Evidence of why the testator was unable to bring the changes into effect. Once again, this would usually be something in writing from an independent person (who is not the person who would benefit from the ex-gratia payment) to say what prevented the testator from updating the will. This might be because sudden illness or incapacity prevented the testator from signing the will or codicil. There may be occasions where the person who will benefit from the ex-gratia payment is required to provide evidence in support of the case. We would expect this to be provided by means of a Statutory Declaration. 

Evidence to back up the trustees' assertion that they feel under a moral obligation to make the payment. This might be minutes of meetings, or other records of discussions, leading up to the trustees deciding to make the payment. The decision need not be unanimous but should be taken in accordance with the quorum and voting provisions of the charity's governing document.

Non-will case

We are likely to consider:

Evidence of why the circumstances of the case have led to the proposal to make an ex-gratia payment. Where this involves a donor requesting the return of a cash donation or other property, this might be copies of correspondence from the donor setting out why their circumstances have changed to the extent that making the gift in the past has resulted in financial difficulties in the present.    

Evidence from third parties to back up the case. This might be a note from a doctor to say that the donor was not medically fit enough to make a measured decision at the time the gift was made. (Where this is the case, it might be that the gift is an imperfect gift that could be returned without the need for ex-gratia authority. The Commission legal adviser will help to decide if this is the case and, if so, advise how to deal with the case.)      

Evidence to back up the trustees' assertion that they feel under a moral obligation to make the payment. This might be minutes of meetings, or other records of discussions, leading up to the trustees deciding to make the payment. The decision need not be unanimous but should be taken in accordance with the quorum and voting provisions of the charity's governing document.

B5.2 When we might authorise an ex-gratia payment      

Will case

Where, from the case made and the evidence provided:

• it is clear that the deceased had intended to change the will but had died before the changes could be put into effect,
• the trustees' decision to make the ex-gratia payment appears to be one which a reasonable body of trustees might take in the circumstances of the case and has been properly taken in accordance with the charity's governing document, and
• the trustees have made a convincing case that they feel a moral obligation to make the payment, backed up by appropriate evidence,

we will usually authorise the proposal by Order, see B6.

Non-will case

Where, from the case made and the evidence provided:

• the trustees' decision to make an ex-gratia payment appears to be one which a reasonable body of trustees might take in the circumstances of the case,
• the trustees' decision to make the proposed payment has been properly taken in accordance with the charity's governing document, and
• the trustees have made a convincing case that they feel a moral obligation to make the payment, backed up by relevant evidence,

we will usually authorise the proposal by Order, see B6.

B5.3 When we might refuse to authorise an ex-gratia payment    

Will cases

We would usually refuse to grant authority in will cases, where the evidence provided: 

• does not clearly show that the testator intended to change the will, or 
• does not contain convincing reasons why the testator was unable to bring the changes into effect, or
• suggests the trustees are not convinced that they feel a moral obligation to make the payment.

Non-will cases

We would usually refuse to grant authority in non-will cases, where the evidence provided: 

• does not clearly support the trustees' assertion that making an ex-gratia payment is appropriate in the circumstances of the case, or
• suggests the trustees are not convinced that they feel a moral obligation to make the payment.

In either case, if it is likely that we will refuse to authorise an application for authority, the advising member of Legal Services SMT should consult the Chief Legal Adviser. When we refuse to authorise an ex-gratia payment, we must clearly record the reasons for our decision on the case file.

If the trustees cannot accept our decision to refuse authority, they can apply directly to the Attorney General for authority. In this case, the Attorney General's decision will overrule ours. Model text for a refusal letter, that sets out the appeal procedure, is available in G2.

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B6 Granting consent

Once we have decided to authorise the proposed payment, and recorded the reasons for this decision on the case file, we will make an Order under s106 authorising the trustees to make the payment, or, where the payment has not yet been made, to waive the charity's entitlement to the gift. Where more than one charity is involved we must send a copy of the Order to each charity. 

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D Case studies

Case studies

A selection of case studies is available on our website. These show the kinds of cases we have dealt with in the past and give an indication of how and why we made our decision in each case.

Legal, Policy and Accountancy Framework

E1 Legal background

The Institute of Legacy Management have produced, with the Commission's help, a factsheet which sets out how charities' legacy officers approach ex gratia payments.

E1.1 The legal power to make ex-gratia payments

Charity trustees must apply charitable funds only in furtherance of the charity's objects, and in accordance with the charity's governing document. However, in re Snowden Dec'd [1970] 1 Ch 700; [1969] 3 WLR 273; [1969] 3 All ER 208 the judge ruled that a charity could make an ex-gratia payment, but only where, if the charity were an individual, it would be morally wrong of him to refuse to make the payment.  

E1.2 The Commission's power to authorise ex-gratia payments

This power is given by s106 of the Charities Act. This section gives the Commission the same power as the Attorney General (AG) to authorise a charity's trustees to apply charitable property, or to waive the charity's entitlement to receive property, where they have no power to do so and where they regard themselves as being under a moral obligation to give up the property. We exercise this power under the supervision of the AG.

E1.3 Other relevant legislation

The power under section 247 of the Companies Act 2006 for company directors to make payments to employees on dissolution  

The effect of this legislation is that a charitable company whose business, or subsidiary’s business, is being transferred or terminated, can make payments (eg loss of employment compensation) to employees. Whether or not it is in the interests of the company to do so is deemed irrelevant, so even though payments under these provisions are ex-gratia payments these can be made under the power provided by the Companies Act without our authority. This section of the Companies Act is primarily concerned with creditor protection.

The power under section 187 of the Insolvency Act 1986 for liquidators to make payments to employees on winding up 

This gives powers similar to those in s247 of the Companies Act to liquidators who are winding up a company (this includes a charitable company). 

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E2 What does the term 'ex-gratia payment' mean?

The phrase 'ex-gratia payment' does not have a precise legal definition but, for the purposes of this guidance, and in the context of ex-gratia payments by charities, this is defined in our published guidance (CC7) as a payment made where:

• the trustees believe that they are under a moral obligation to make the payment; but
• the trustees are not under any legal obligation to make the payment; and
• the trustees cannot justify the payment as being in the interests of the charity. 
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E3 When might trustees decide that making an ex-gratia payment is appropriate? 

E3.1 Will cases

Examples of the kind of reasons for proposing to make an ex-gratia payment in will cases might include cases where the testator/testatrix had:

• signalled a clear intention, in writing, to alter the will but had died before the will could be formally altered
• instructed a will draftsman by telephone of their intention to amend the will but had died before the amended will could be signed 
• left a gift to a sibling who died shortly before the willmaker died. The willmaker had made it clear verbally that they would like this gift to go to the sibling's children but died before the will could be changed 
• left a fixed amount to each of three children, with the residue of the estate going to a named charity. The value of the estate increased to the extent that the residue became a much greater proportion of the estate than the testator had intended. (There was clear evidence of the true intention of the testator.)

E3.2 Non-will cases

Ex-gratia payment cases that are not related to will cases are rare but these might refer to a proposal to return a charitable donation made while the donor was emotionally distressed and so miscalculated their assets to the extent that making the gift has had a significant negative impact on the donor's personal finances.

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E4 Payments that are commonly confused with ex-gratia payments

 Payments that are commonly confused with ex-gratia payments include:

•  a payment that can be made under an existing authority, either express or implied
• a payment that could be justified as being expedient in the interests of the charity under s105 of the Charities Act. For example, a gift to a long serving employee on retirement or an enhanced redundancy payment (this would demonstrate that the charity is a good employer and might mean that the charity is more able to recruit and retain high-calibre staff)
• a payment to settle a legal obligation, for example, a payment to settle a claim made under certain inheritance legislation
• a payment made as a compromise to avoid a claim being pursued via legal action (see OG516)
• a payment that can be justified as furthering the charity's purpose.
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E5 Where a testator's will draftsman has been negligent

Where the testator's instructions were not carried out because of delay or negligence on the part of the testator's will draftsman then the disappointed potential beneficiary may have a claim against the will draftsman. However, the Commission will still consider applications for authorisation to make an ex gratia payment to the disappointed beneficiary in these circumstances. It will expect the trustees to explain why they consider themselves to be under a moral obligation to make the payment notwithstanding the existence of the claim.     

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E6 Policy 

Our policy regarding ex-gratia payments is that:

• Where our authority is required, we expect trustees to apply for this using the online application form. Using the form should ensure that we are given all the information we need to consider an application without further enquiry.
• If the trustees confirm that they feel a moral obligation to make the payment, and the evidence to support this is satisfactory, we will usually authorise the making of the payment as long as the trustees' decision is one which is within the range of decisions that a reasonable body of trustees might take.
• Where the trustees appear unconvinced that they feel a moral obligation to make the payment, or where the evidence in support of the application is incomplete or unsatisfactory, it is unlikely that we will authorise the ex-gratia payment.
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