Charity property fraud: how can you protect from undue influence?

In this series of articles, we have been looking at the types of property fraud that charities may encounter and how they can protect against them.

In earlier articles in the series, our experts explored the cost of charity property fraud and how it affects your charity, and how to protect against identity fraud.

This time, Marina Leigh from our Charity Property team explores undue influence in the context of charity property.

What is undue influence?

Undue influence arises where a relationship exists between two parties and the dominant person unfairly influences the other, often a vulnerable individual. Two types of undue influence exist: actual and presumed.

• Actual undue influence
  • The person who has been influenced must prove that they have been unfairly pressured and influenced by another, for example through emotional manipulation, extortion, or with the threat of physical harm.
  • If that person has died or is incapacitated, their representative can make the claim.

• Presumed undue influence
  • If the victim cannot make out the test for actual undue influence, they may be able to raise a presumption of undue influence. If such a claim is brought, the burden of proof is on the accused person to demonstrate that they have not acted in a way that prevented the other person from acting against their own free will.
  • For presumed undue influence, two conditions must be satisfied:
    • there is, or was, a pre-existing relationship of influence (or trust and confidence) between the parties (e.g. trustee/beneficiary, parent/child, solicitor/client); and
    • the transaction calls for explanation (i.e. the transaction cannot readily be explained by the relationship of the parties).

How does undue influence relate to Charity Property?

Property often forms a significant part of an individual's assets and estate. People frequently bequeath their property to charities, whether in the form of specific or residual gifts. They can also choose to make gifts of property to charities during their lifetimes. Charity property can be involved in cases concerning undue influence in a number of ways:

• During the life of the individual, undue influence can arise with property transfers, sales, mortgages, or gifts of property. Where that property would have otherwise been donated, or bequeathed, to a charity, this could result in significant losses to those charities.

• Following the death of the individual, the charity may be concerned that the will has been written under undue influence. In such a case, the will can be contested. If successful, the will may be set aside and the estate distributed according to the rules of intestacy, or a previous will, depending on the circumstances.

If undue influence is established, the victim (or their representative) can often seek that the property transaction/will is set aside and the parties restored to their original positions. In some cases, damages may also be awarded.  From a criminal perspective, if undue influence is established, the wrongdoer could be subject to fraud or coercive control proceedings.

Why is undue influence so dangerous?

Undue influence often involves exploiting a vulnerable person, whether that person is frail, elderly, unwell, or isolated. The influence asserted over the victim is usually undertaken in private, in isolation from professional advisers.

Sadly, it is frequently the case that those closest to the victim – including family and friends – assert undue influence for their own gain, giving this type of fraud a sad, and sometimes sinister, perspective.

How to avoid undue influence over charity property?

Charities will usually become aware of undue influence after the event (i.e. after the property has been gifted out of the estate). In this case, the charity should:

• Gather evidence and witness statements regarding the victim's capacity.
• Ascertain who the victim frequently associated with.
• Establish the true manner in which the victim wanted to distribute their assets and the extent of the alleged harm to them/their finances and estate.

The best way for a charity to protect against undue influence is to provide guidance for individuals/donors of land before the event when they indicate a wish to donate property. Such guidance should:

• Encourage donors to take advice from an independent solicitor, unconnected to any of their beneficiaries. The independent solicitor should keep records of their discussions and document any unusual requests that the donor makes, as well as their reasoning for making those decisions.
• Remind donors to ensure they make their will when they are of sound mind, without any concerns over their mental capacity.
• Stress the importance of excluding beneficiaries from the preparation and execution of the donor's wills.
• Encourage donors to communicate openly with their family and close friends regarding their intention to make a gift to charity, to manage their expectations about their estate planning.
• Suggest that donors appoint an independent attorney, and professional executor, rather than a close friend or family member/beneficiary of their will.

If you think your charity has a claim for undue influence you should obtain legal advice at the earliest opportunity.

Join us in the next article for a deeper dive into property fraud by an attorney or deputy. If you have any questions on the topics discussed in this article, please get in touch with Marina Leigh.