Independent schools and legacy disputes

Challenges to fee-dependency in independent schools

Currently, the vast majority of schools are exempt from VAT under the VAT Act 1994, which states that the provision of education or vocational training by an 'eligible body', and goods or service closely related to the supply of education or vocational training, are exempt from VAT.

Further, if a school is a registered charity – as around half of them are – it is eligible for an 80% discount on the business rates liability of its property, provided that that property is used wholly or mainly for charitable purposes.

His Majesty's government has said that from 1 January 2025, private schools will no longer be eligible for the VAT exemption or for business rates relief. This will inevitably put pressure on finance and highlights the need for fundraising beyond the charging of fees.

The rise of legacy income in charitable giving

Thankfully, legacy income appears to be on the up. Figures from the consultancy Legacy Futures’ Legacy Monitor consortium, which tracks the growth of the legacy market using data from more than 80 charities, found members received £1.8bn in legacy income in the year to March 2024, up one per cent from the previous financial year.

Promoting legacy giving: practical steps for schools

For schools without an established legacy marketing strategy, it is worth considering how your school promotes legacies to its alumni. A dedicated page on your website, which makes clear the IHT benefits of leaving at least 10% of their estate to charity, can be persuasive. Also consider making clear what charity name your benefactor should include in their Will so as to avoid any issues over entitlement. You can also ask benefactors to inform you if they have or propose to include a legacy to your school in their Will, which may help in the event of challenge (see below). An easy-to-use auto-populated form can be offered.

Managing legacy disputes: common challenges

A healthy legacy income inevitably means some challenges. It is not uncommon for others to claim legacies that are properly due to your school. Those disgruntled that charity is the recipient of your benefactor's largesse can bring a whole host of challenges to legacy income. Potential claims include:

• challenges to the validity of the Will;
• financial provision claims;
• claims of unfulfilled promises; and
• allegations of errors in the drafting.

Probate disputes have the unusual characteristic of the key witness (your benefactor) no longer being with us to give evidence. As such, any litigation risk is enhanced.

A polite but robust response founded on legal analysis will often stop a clash in its tracks. Where it does not, it is rare for a charity not to be able to negotiate a sensible compromise rather than face long running litigation. There is strong encouragement from the judiciary to seek to resolve matters out of court. Judges have been known to dish out excoriating criticism, or even punitive costs orders, to those who do not try to resolve their disputes before burdening the courts with them. This can be relied on to bring parties to the negotiation table.

Alternative dispute resolution options

When people think of alternative dispute resolution, or ADR, they often think of mediation. But there is all manner of approaches: some like mediation, involving external/independent professional input, and some less formal such as without prejudice correspondence and/or a round table meeting.

Mediation involves bringing parties together – either physically in a shared venue at an 'in person' mediation, or virtually on a conferencing platform for 'remote' or 'online' mediation – alongside a trained and qualified specialist mediator whose job it is to know the relevant law and the parties' cases inside out, and to work on all parties to bring them to ground that is sufficiently common to arrive at agreed terms of a compromise.

'Open' correspondence is so called because it will be seen by the court. In open correspondence, you can set out your case and explain why, if pushed to resolution by trial, your position will prevail. But in 'without prejudice' (WP) and 'without prejudice save as to costs' (WPSATC) correspondence, there is more scope to present concessions, with a view to resolving the matter without compromising the force of your open letter. WP correspondence will never be seen by the court, whereas WPSATC correspondence can be referred to when decisions are being made about who pays the costs of the dispute.

Relations can sometimes be so hostile or positions so entrenched that it takes judicial involvement. In such situations, the parties can consent to, or the court can sometimes order, the listing of a judicial 'early neutral evaluation' (ENE) or, for financial provision claims, a 'financial dispute resolution (FDR) hearing'.

There will usually be a short hearing at which the parties are able to put forward their case, but for instance, no witnesses. The judge will provide the parties with an opinion about the claim or elements of it or indicate their view as to what is likely to happen if the claim goes to trial. However, the judge's view or opinion will not be binding. The parties will then have an opportunity to negotiate. There is no fee payable for the services of a judge or court time. The entire process is generally without prejudice and, if matters are unresolved, discussions at the FDR or ENE may not be referred to in the ongoing court proceedings. The judge who hears the FDR or ENE will not hear the final claim.

These processes are particularly suitable where the parties have strongly opposed views on a critical aspect of the case.

Lastly, we should mention arbitration. This is a formal, binding process that sees an independent expert decide which party's position should succeed. This is rarely used in probate disputes as it can be more expensive than court proceedings, but it has its advantages in the right circumstances as it usually provides complete privacy without a public judgment.

Future proofing your fundraising strategy

As demonstrated by the above, there are numerous paths a dispute can follow, and some can resolve contentions before they really manifest. Potential claims are not to be feared and certainly shouldn't deter schools from exploring opportunities to raise legacy income, particularly given the pressures which may be imposed on schools by the forthcoming changes to taxation.

This article was originally published by The Institute of Development Professionals in Education (IDPE).