Charitable giving in a Will

[scrumpyjack]

Amusing thread.

Isn’t it even better to ensure that charities deserve the amounts left in a will by giving to them while one is alive and interacting with them and their management to check they are being run effectively?

regards

Howard

Yes I agree. I gave a decent amount last year to a local disabled sports charity where one could see the good work they were doing and most was done by volunteers. A big contrast to the large charities where some waste huge amounts, on my subjective view but also based on the opinion of people I know who have worked in the charity sector for many years and have personal experience of it.

[mc2fool]

Amusing thread.

Surely one either wants to give to selected charities or not?

Some posts seem to treat them as adversaries with terms such as “pester”. If a charity is left a significant amount in a will isn't it the charity’s duty to claim it?

No serious investor would back a company that was lackadaisical in collecting substantial revenues due to it, so why support a charity that allowed executors to cheat it out of legacies?

The best way to write a will is surely to clearly state the amount to go to each charity supported. And every few years check this and update if necessary. The cost of re-writing a will or adding a codicil is relatively small.

That's one approach but the issue being discussed is that of leaving them residuary amounts, not pecuniary ones, which may not be possible in all cases.

That is far from as simple as a charity "claiming" a pecuniary amount but rather can get the charity involved in the execution of the will, and the issue at point is the extra efforts that will cause the executors. Actually I had no idea just how deeply that involvement could be until I found the following document. See sections 2.4.3 and 2.5.

https://legacymanagement.org.uk/wp-content/uploads/Charities-as-Beneficiaries-1.pdf#%5B%7B%22num%22%3A75%2C%22gen%22%3A0%7D%2C%7B%22name%22%3A%22FitR%22%7D%2C-375%2C-10%2C969%2C853%5D

[hiriskpaul]

Amusing thread.

Surely one either wants to give to selected charities or not?

Some posts seem to treat them as adversaries with terms such as “pester”. If a charity is left a significant amount in a will isn't it the charity’s duty to claim it?

No serious investor would back a company that was lackadaisical in collecting substantial revenues due to it, so why support a charity that allowed executors to cheat it out of legacies?

The best way to write a will is surely to clearly state the amount to go to each charity supported. And every few years check this and update if necessary. The cost of re-writing a will or adding a codicil is relatively small.

Isn’t it even better to ensure that charities deserve the amounts left in a will by giving to them while one is alive and interacting with them and their management to check they are being run effectively?

regards

Howard

If you make a charity a residuary beneficiary you are placing a much bigger burden on them than you would if you leave them a legacy. As a residuary beneficiary it is the charity's duty to make sure that the estate is properly administered. For someone who does not have complete faith in their executors this may be a good thing! Otherwise it is an unnecessary extra burden on the executors.

The reduced inheritance tax rate greatly complicates leaving money to charities. There is no point being just under the 10%, or even 5% under, as this leaves both the charity and residuary beneficiaries worse off than if 10% was left.

The reduced IHT rate also can make charitable giving more tax efficient if done in a Will than done when you are alive, which I think is very perverse, but maybe charities benefit overall from the measure.

[Lootman]

The reduced IHT rate also can make charitable giving more tax efficient if done in a Will than done when you are alive, which I think is very perverse, but maybe charities benefit overall from the measure.

Whilst alive you can receive a tax benefit via Gift-Aid. After death there can be an IHT saving. Which is better would depend on your individual tax situation, I would have thought.

[mc2fool]

The reduced IHT rate also can make charitable giving more tax efficient if done in a Will than done when you are alive, which I think is very perverse, but maybe charities benefit overall from the measure.

Whilst alive you can receive a tax benefit via Gift-Aid. After death there can be an IHT saving. Which is better would depend on your individual tax situation, I would have thought.

Actually you don't get any tax benefit via Gift-Aid, it's the charity that does by (effectively) receiving your donation gross of tax.

It may appear that you get a tax benefit if you're a higher rate taxpayer, 'cos you get money back (in the form of a reduction of taxes) but actually it's just a balancing to make your donation gross.

E.g. you give £100 to a charity and they claim Gift Aid to make your donation £125. As an HRT you claim back £25.00 (£125 x 20%), which makes it appear that you paid just £75 (£100 less the £25) for the charity to get £125. But that £75 is out of your net income, which (at 40%) you'd have to have earned £125 gross to get. So, after all that, the benefit is solely that the charity gets your donation gross.

Bequests to charities are also made gross (of IHT in that case), so there's no difference to them for that, per se, but the 10% rule means that it can also be a benefit to you (well, your estate and beneficiaries).

[Howard]

We are on an investment site where wise investors do some research into their investments so I assume we are discussing leaving significant legacies to worthwhile charities?

It's sensible to talk to the charity(ies) and see what their advice is. For a potential legacy gift of tens of thousands of pounds (or more) for example they will be very happy to advise. And by speaking to them you can get a very good idea of whether you trust the charity. If you don’t trust them and believe they will pester your executors then surely you won’t support them?

From a little experience of being an executor for modest estates a couple of times and observing from a distance a particular large legacy whittled away Dickens' style in legal expenses by solicitors who’d drawn up the will seemingly as a money-making venture for themselves, I would suggest leaving specific amounts to charities and the residual amount of an estate to one’s children or relative who will be motivated to get things sorted out quickly.

Leaving executors to decide on charities and amounts might risk your treasured assets being given to donkey sanctuaries and sick bunny homes?

If you want to support your old red-brick but world-class university, for example, you can give a substantial donation now, saving tax by gift aiding it and get invited to chat to the Vice Chancellor about their priorities. You can then decide if they are worth the legacy you are planning. (You’ll have to stomach their significant six figure salary and benefits but they can be stimulating company .) The same applies to smaller more focussed charities.

regards

Howard

[mc2fool]

I would suggest leaving specific amounts to charities and the residual amount of an estate to one’s children or relative who will be motivated to get things sorted out quickly.

Your due diligence points noted, but did you read the doc I linked to in viewtopic.php?p=560721#p560721? I found it interested that the opening sentence of the section I referred to says "Nearly 90 per cent of the £2 billion bequeathed to charity in the UK each year comes from residuary gifts."

I will be part of the 90% and I'm not sure how it could be any other way for my case. I have my home and a bunch of savings & investments, and no children or dependents. Aside from a few knick-knacks to odd people, I intend to leave my home & contents to my brother and the rest, all of my non-physical assets (savings & investments), to charity.

Leaving executors to decide on charities and amounts might risk your treasured assets being given to donkey sanctuaries and sick bunny homes?

Yes, clearly if you go the letter of wishes route you have to trust your executors not to give it all to charities you wouldn't approve of, although I do wonder if it'd be possible/OK to tie things down somewhat in the will to avoid outcomes totally different to your wishes. E.g. Will: the rest I leave to children's hospitals. Letter of wishes: GOSH and/or Evelina.

[hiriskpaul]

Comparison with gift aid can get very complicated.

Consider a £100 gift to charity from the chargeable part of the estate, with an IHT rate of 40%. That gift would have "cost" the beneficiaries £60 , as they would have lost £40 IHT had the gift not been made.

Now consider an £80 gift to charity by a basic rate taxpayer under gift aid, so the charity still receives £100. That reduces the estate by £80 and the IHT that would have been payable on that would have been 40% of £80 = £32. That means the cost of the gift would have been £80 - £32 = £48.

That implies it would have been better for beneficiaries for the gift to be have been done under gift aid as it would cost them £12 less. But wait! What happens if the chargeable estate is £1000? In that case, IHT would have been chargeable at only 36% on the rest of the estate instead of 40%. The estate would have been charged £400 IHT had the gift not been made, leaving £600 for beneficiaries. Now it will be charged 36% of (£1000 estate - £100 gift) = £324. That means that the beneficiaries receive £1000 estate - £100 gift - £324 IHT = £576. So now the cost to the benefiairies would only be £24. So that is £24 less than under gift aid.

For higher rate taxpayers, the cost to beneficiaries works out at 36% of the gift, so still not as good as gifting from the estate where the gift forms part of the 10% going to charity.

It gets more complicated still as the gift from the estate rises above 10% of the chargeable estate. In that case the "cost" to beneficiaries rises and matches the gift aid cost for basic rate taxpayers when 25% of the chargeable estate is gifted.

[hiriskpaul]

I would suggest leaving specific amounts to charities and the residual amount of an estate to one’s children or relative who will be motivated to get things sorted out quickly.

Your due diligence points noted, but did you read the doc I linked to in viewtopic.php?p=560721#p560721? I found it interested that the opening sentence of the section I referred to says "Nearly 90 per cent of the £2 billion bequeathed to charity in the UK each year comes from residuary gifts."

I will be part of the 90% and I'm not sure how it could be any other way for my case. I have my home and a bunch of savings & investments, and no children or dependents. Aside from a few knick-knacks to odd people, I intend to leave my home & contents to my brother and the rest, all of my non-physical assets (savings & investments), to charity.

Leaving executors to decide on charities and amounts might risk your treasured assets being given to donkey sanctuaries and sick bunny homes?

Yes, clearly if you go the letter of wishes route you have to trust your executors not to give it all to charities you wouldn't approve of, although I do wonder if it'd be possible/OK to tie things down somewhat in the will to avoid outcomes totally different to your wishes. E.g. Will: the rest I leave to children's hospitals. Letter of wishes: GOSH and/or Evelina.

So about £1.8B to charities from residuary estates. I wonder how much of that £1.8B went in costs of due diligence by the charities' solicitors compared to the amount had the gifts arrived via pecuniary legacies? The extra costs would of course have reduced the actual amount going to good causes.

[Howard]

I would suggest leaving specific amounts to charities and the residual amount of an estate to one’s children or relative who will be motivated to get things sorted out quickly.

Your due diligence points noted, but did you read the doc I linked to in viewtopic.php?p=560721#p560721? I found it interested that the opening sentence of the section I referred to says "Nearly 90 per cent of the £2 billion bequeathed to charity in the UK each year comes from residuary gifts."

I will be part of the 90% and I'm not sure how it could be any other way for my case. I have my home and a bunch of savings & investments, and no children or dependents. Aside from a few knick-knacks to odd people, I intend to leave my home & contents to my brother and the rest, all of my non-physical assets (savings & investments), to charity.

Leaving executors to decide on charities and amounts might risk your treasured assets being given to donkey sanctuaries and sick bunny homes?

Yes, clearly if you go the letter of wishes route you have to trust your executors not to give it all to charities you wouldn't approve of, although I do wonder if it'd be possible/OK to tie things down somewhat in the will to avoid outcomes totally different to your wishes. E.g. Will: the rest I leave to children's hospitals. Letter of wishes: GOSH and/or Evelina.

So about £1.8B to charities from residuary estates. I wonder how much of that £1.8B went in costs of due diligence by the charities' solicitors compared to the amount had the gifts arrived via pecuniary legacies? The extra costs would of course have reduced the actual amount going to good causes.

Do charities use solicitors to claim legacies? In my experience it's a member of the Development team and a pretty simple process involving writing letters to remind executors if they don't notify the charity of an expected legacy etc. A lot of major legacy giving is indicated in advance by the donor before death (often by joining a legacy society). The costs tend all to be on the deceased's side handling the estate surely? Complications can occur when the beneficiaries of the estate try to avoid the gift. Or forwarding less than the full amount, perhaps because they aren't aware of the deceased's commitment.

However charities probably do use solicitors if large scale fraud is suspected. And their supporters (and beneficiaries) would expect them to do so.

I don't understand the hostility towards charities in these posts. If one doesn't like a charity - don't give to it. Surely it's better to give to a cause that helps one to die happier!

regards

Howard

[hiriskpaul]

I would suggest leaving specific amounts to charities and the residual amount of an estate to one’s children or relative who will be motivated to get things sorted out quickly.

Your due diligence points noted, but did you read the doc I linked to in viewtopic.php?p=560721#p560721? I found it interested that the opening sentence of the section I referred to says "Nearly 90 per cent of the £2 billion bequeathed to charity in the UK each year comes from residuary gifts."

I will be part of the 90% and I'm not sure how it could be any other way for my case. I have my home and a bunch of savings & investments, and no children or dependents. Aside from a few knick-knacks to odd people, I intend to leave my home & contents to my brother and the rest, all of my non-physical assets (savings & investments), to charity.

Leaving executors to decide on charities and amounts might risk your treasured assets being given to donkey sanctuaries and sick bunny homes?

Yes, clearly if you go the letter of wishes route you have to trust your executors not to give it all to charities you wouldn't approve of, although I do wonder if it'd be possible/OK to tie things down somewhat in the will to avoid outcomes totally different to your wishes. E.g. Will: the rest I leave to children's hospitals. Letter of wishes: GOSH and/or Evelina.

So about £1.8B to charities from residuary estates. I wonder how much of that £1.8B went in costs of due diligence by the charities' solicitors compared to the amount had the gifts arrived via pecuniary legacies? The extra costs would of course have reduced the actual amount going to good causes.

Do charities use solicitors to claim legacies? In my experience it's a member of the Development team and a pretty simple process involving writing letters to remind executors if they don't notify the charity of an expected legacy etc. A lot of major legacy giving is indicated in advance by the donor before death (often by joining a legacy society). The costs tend all to be on the deceased's side handling the estate surely? Complications can occur when the beneficiaries of the estate try to avoid the gift. Or forwarding less than the full amount, perhaps because they aren't aware of the deceased's commitment.

However charities probably do use solicitors if large scale fraud is suspected. And their supporters (and beneficiaries) would expect them to do so.

I don't understand the hostility towards charities in these posts. If one doesn't like a charity - don't give to it. Surely it's better to give to a cause that helps one to die happier!

regards

Howard

It's not about whether you like a charity or not. If you don't like it, then of course you wouldn't give it anything! It is not really about hostility either, other than hostility to unnecessary beureaucracy. It is about the extra admin that may be required by both the executors and the charity if the charity is made a beneficiary of the residuary estate. In that case, many if not all charities would be duty bound to check that the estate has been correctly administered. I don't know the views of the Charity Commission, but I think a charity named as a residuary beneficiary should check the accounts, ask questions and be difficult if things are not as they should be. This additional hassle can all be avoided by leaving charities specific and/or pecuniary legacies.

[Lootman]

Comparison with gift aid can get very complicated.

Yes I can see that now! I have never actually done Gift-Aid so it is interesting to see some examples of how it works in practice. So thank you for schooling me on that, and also to mc2fool.

However for me the question about whether it is better to make the gifts whilst alive versus via one's Will is less about saving some tax, and more about saving effort, hassle and risk for my executors (my kids). People here have mentioned how aggressive charities can be during probate, making it tempting to make gifts whilst I can.

In fact if I were told that I had (say) 3 months to live I would be tempted to give away everything, either to charities or to beneficiaries. That would effectively render moot my Will since it would never be executed. And I would be able to precisely control exactly who gets how much. In that context my Will is really for an unexpected and premature demise rather than a situation where I get sick and see the end coming.

However charities probably do use solicitors if large scale fraud is suspected. And their supporters (and beneficiaries) would expect them to do so.

I don't understand the hostility towards charities in these posts. If one doesn't like a charity - don't give to it. Surely it's better to give to a cause that helps one to die happier!

I don't think people here are being hostile to charities as such. After all the topic is giving to charity. I think what troubles me and some others is that we tend to think of charitable giving as being voluntary and unforced. Yet if mentioned in the Will then those same gifts become an absolutely liability which, as you describe, could lead to lawsuits and allegations of fraud if they are not honoured by executors using their discretion. Such interactions will feel very distinct from the normal manner of charitable donations.

It is one thing for a charity to ask for money. It feels quite different when they demand money with menaces!

[scrumpyjack]

In fact if I were told that I had (say) 3 months to live I would be tempted to give away everything, either to charities or to beneficiaries. That would effectively render moot my Will since it would never be executed. And I would be able to precisely control exactly who gets how much. In that context my Will is really for an unexpected and premature demise rather than a situation where I get sick and see the end coming.

Unless giving it to your spouse, that might not be optimal because such gifts to people will be a disposal for CGT purposes and because it would be less than 7 years til death there will also be IHT! So it will be double taxed!

At least when you die assets are valued at probate without CGT arising.

[Dod101]

We are on an investment site where wise investors do some research into their investments so I assume we are discussing leaving significant legacies to worthwhile charities?

It's sensible to talk to the charity(ies) and see what their advice is. For a potential legacy gift of tens of thousands of pounds (or more) for example they will be very happy to advise. And by speaking to them you can get a very good idea of whether you trust the charity. If you don’t trust them and believe they will pester your executors then surely you won’t support them?

From a little experience of being an executor for modest estates a couple of times and observing from a distance a particular large legacy whittled away Dickens' style in legal expenses by solicitors who’d drawn up the will seemingly as a money-making venture for themselves, I would suggest leaving specific amounts to charities and the residual amount of an estate to one’s children or relative who will be motivated to get things sorted out quickly.

Leaving executors to decide on charities and amounts might risk your treasured assets being given to donkey sanctuaries and sick bunny homes?

If you want to support your old red-brick but world-class university, for example, you can give a substantial donation now, saving tax by gift aiding it and get invited to chat to the Vice Chancellor about their priorities. You can then decide if they are worth the legacy you are planning. (You’ll have to stomach their significant six figure salary and benefits but they can be stimulating company .) The same applies to smaller more focussed charities.

regards

Howard

The other point about gift aid is of course that you need to be paying enough tax to cover the claimed by the charity.rebate otherwise HMRC will take it back again in your tax return.

Dod

[Dod101]

And of course Lootman should remember that even were he told that he had 3 months to live he could well still be alive 3 years later in a care home and his Attorney could be being chased for trying to avoid paying care home fees! Not really very easy any of this.

Dod

[hiriskpaul]

And of course Lootman should remember that even were he told that he had 3 months to live he could well still be alive 3 years later in a care home and his Attorney could be being chased for trying to avoid paying care home fees! Not really very easy any of this.

Dod

As well as that and the CGT issue, it would not necessarily remove from Lootman's beneficiaries the liability to IHT, depending on the size of the estate and how much was given to charity. As my previous post indicates, Lootman could easily end up with the situation where a lot more IHT would be chargeable than if he had given to charity from the Will. Also, if the HMRC considered that IHT was due on the transfers they could appoint a highly litigious team to go after it. That could easily cost his beneficiaries far more than it would had his estate gone through a normal process of administration, along with considerable hassle.

If someone wanted to leave nothing to the HMRC, the optimal way to do that would be to give beneficiaries an amount precisely matching the available nil rate band and leave everything else to charity.

[Lootman]

And of course Lootman should remember that even were he told that he had 3 months to live he could well still be alive 3 years later in a care home and his Attorney could be being chased for trying to avoid paying care home fees! Not really very easy any of this.

As well as that and the CGT issue, it would not necessarily remove from Lootman's beneficiaries the liability to IHT, depending on the size of the estate and how much was given to charity. As my previous post indicates, Lootman could easily end up with the situation where a lot more IHT would be chargeable than if he had given to charity from the Will. Also, if the HMRC considered that IHT was due on the transfers they could appoint a highly litigious team to go after it. That could easily cost his beneficiaries far more than it would had his estate gone through a normal process of administration, along with considerable hassle.

Yes, all good points, thanks guys, and Jack too. This stuff is complicated!

As long as my wife is still around, it's not such a critical issue. If she goes before me, then some difficult decisions might be required.

[Howard]

However charities probably do use solicitors if large scale fraud is suspected. And their supporters (and beneficiaries) would expect them to do so.

I don't understand the hostility towards charities in these posts. If one doesn't like a charity - don't give to it. Surely it's better to give to a cause that helps one to die happier!

I don't think people here are being hostile to charities as such. After all the topic is giving to charity. I think what troubles me and some others is that we tend to think of charitable giving as being voluntary and unforced. Yet if mentioned in the Will then those same gifts become an absolutely liability which, as you describe, could lead to lawsuits and allegations of fraud if they are not honoured by executors using their discretion. Such interactions will feel very distinct from the normal manner of charitable donations.

It is one thing for a charity to ask for money. It feels quite different when they demand money with menaces!

Charities who are legally left a legacy of £x,000 aren't “demand(ing) money with menaces.” when they ask for it to be paid, if the beneficiaries try to avoid paying.

Surely, when you were a landlord, you couldn't be accused of “demand(ing) money with menaces” when you asked a tenant to pay the legally agreed rent?

regards

Howard

[mc2fool]

Comparison with gift aid can get very complicated.

Yes, while the two, Gift Aid and IHT re charitable donations, are straightforward in themselves, well done for elucidating on their interaction in respect of reducing (or not) the size of the estate.

A couple of tangential things to add. Firstly, not sure if you intended it but your OP seems to imply that the purpose of leaving 10% to charity would be to get the reduced rate of IHT. Well, unless I'm missing something, if that were the sole reason for doing so then, as the 10% is of the whole net estate whereas the IHT (reduced a tenth from 40% to 36%) is applied on the estate over £325K (simple case, no dependents/descendants). So the tax saving will always be less than the cost of the 10% donation.

The other thing, as Dod mentioned re Gift Aid, is that you can only Gift Aid up to the grossed up amount of tax you've paid, and if you think of that in comparison to the 10%, most people will get there pretty quickly after exceeding the £325K allowance. Even with a modest estate of £500K, 10% of that is £50K and were you wanting to Gift Aid the equivalent instead (£40K + £10k GIft Aid) that'd take you (a bit) into the higher rate tax band to pay the £10K tax. While that might not be an issue for many people working, amongst retired folks asset-rich-income-(relatively)poor is much more common and, esp. with house price inflation, it's likely to take most pensioners many years to make a 10% of assets equivalent set of Gift Aidable donations

[tjh290633]

The reduced IHT rate also can make charitable giving more tax efficient if done in a Will than done when you are alive, which I think is very perverse, but maybe charities benefit overall from the measure.

Whilst alive you can receive a tax benefit via Gift-Aid. After death there can be an IHT saving. Which is better would depend on your individual tax situation, I would have thought.

Actually you don't get any tax benefit via Gift-Aid, it's the charity that does by (effectively) receiving your donation gross of tax.

It may appear that you get a tax benefit if you're a higher rate taxpayer, 'cos you get money back (in the form of a reduction of taxes) but actually it's just a balancing to make your donation gross.

E.g. you give £100 to a charity and they claim Gift Aid to make your donation £125. As an HRT you claim back £25.00 (£125 x 20%), which makes it appear that you paid just £75 (£100 less the £25) for the charity to get £125. But that £75 is out of your net income, which (at 40%) you'd have to have earned £125 gross to get. So, after all that, the benefit is solely that the charity gets your donation gross.

Bequests to charities are also made gross (of IHT in that case), so there's no difference to them for that, per se, but the 10% rule means that it can also be a benefit to you (well, your estate and beneficiaries).

Having been through the process of submitting tax returns a good few times, the procedure, as I see it, is that your basic rate of tax is increased by the amount of gift aid claimed by the charity, so giving you relief from Higher Rate Tax on your donations.

It might be worth looking at HMRC's calculations in this respect.

TJH