Legacy giving
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This document discusses legacy giving and inheritance tax. It provides an overview of sector data on legacy income and donor motivations. It also summarizes two court cases around conflicting charity duties regarding legacies. The document then discusses the reduced 10% inheritance tax rate for estates where charitable gifts are 10% or more of the net estate. It provides advice for charities on managing disputes, encouraging legacy giving through appeal literature, and potential ways to take advantage of tax benefits to increase legacy income.
![What can happen when legacies go
wrong?
• Conflicting duties of charity trustees around legacies
• “The RSPCA cases” - two very different scenarios - valid
/ invalid will
• Gill v Woodall [2010]
• RSPCA v Sharpe [2011]](https://image.slidesharecdn.com/legacygiving-140327051646-phpapp02/85/Legacy-giving-3-320.jpg)
Legacy giving
- 1. Legacy Giving Getting it Right 19 March 2014
- 2. What can happen when legacies go wrong? Andrew Digwood Partner
- 3. What can happen when legacies go wrong? • Conflicting duties of charity trustees around legacies • “The RSPCA cases” - two very different scenarios - valid / invalid will • Gill v Woodall [2010] • RSPCA v Sharpe [2011]
- 4. RSPCA v Sharpe - the facts The facts • Prior gifts to family and friends - residue to the charity • Beneficiaries’ position - Gift of full nil-rate band + gift of property = charge to IHT • All tax to be paid from the estate before the residue passed to the charity • Charity’s position - Take both gifts into account up to the tax threshold • Then residue passes free of IHT to RSPCA
- 5. RSPCA v Sharpe - the Court’s decision 1st instance - critical of the charity “Putting a burden on the deceased’s relatives & friends” Appeal - charity’s argument unanimously upheld But reputational damage already done?
- 6. Gill v Woodall - the facts • Mr & Mrs Gill - mirror wills to each other and in default to the RSPCA • 1999 - Mr Gill’s death 2006 - Mrs Gill’s death • Mrs Gill’s mental health / Mr Gill’s “domineering” nature • Dr Gill - sacrificed pursuit of academic career to live adjacent to and work on farm
- 7. Gill v Woodall - the Court’s decision • Dr Gill’s 1st instance claim • Mrs Gill knew and approved contents of her will, but was influenced by husband • And Dr Gill’s actions - “proprietary estoppel” - “Unconscionable” for Dr Gill not to inherit • RSPCA’s appeal - failed but on different grounds • Mrs Gill did not know or approve the contents of her will therefore no valid will
- 8. Reducing likelihood of disputes - What can charities do? • Legacy disputes rare compared to amount of wealth gifted to charities in wills • Charity may only become aware after the benefactor’s death • Encourage supporters to engage with charity and family before setting up a legacy • Encourage them to take specialist advice to ensure will drawn up carefully • Record reasons for gift both in the Will itself and with the charity internally
- 9. Managing legacy disputes - What can charities do? • Conflicting duties for Trustees - Reputation v Maximising Assets • Managing the press - “who’s the bad guy here?!” • Legal costs • ADR e.g. Mediation • Charity Commission - draft guidelines https://www.charitycommission.gov.uk/media/92839/paper1 0obm27.pdf
- 10. Legacy Giving – Practical Advice Gerry Morrison Partner Sarah Greendale Solicitor
- 11. Topics for today • Sector Perspectives • Register of Mergers - impact upon legacy income • Types of Gift • Reduced 10% Inheritance Tax Rate • The 10% Test • How Charities might take Advantage • Points to Consider in Appeal Literature • Take Care • In Summary
- 12. Sector Perspectives • Legacy Monitor Consortium (Legacy Foresight) • Analysis of the Legacy and In-Memoriam Sectors • Appraises the state of the markets, produces income forecasts and researches donor motivation • Latest data shows the income of the Legacy Monitor Consortium’s members from gifts in Wills was £1.11 billion in the year to December 2013 • Legacy income increased by 3.8% last year £1.11 billion compared with £1.07 billion in the previous year
- 13. Sector Perspectives • Data shows average residual values of £53,600 • Residual value = remainder of the estate left after bequests and specific legacies have been distributed and all debts cleared • Caution - Legacy Foresight reports £53,600 figure misleading because recent inflation rates of between 3% and 5% mean the real value of residuals was “still considerably lower than in 2008” • Average pecuniary or cash legacy made to charities reported to be worth £3,400
- 14. Sector Perspectives • Data also showed cash legacies have been falling gradually from a high of £3,700 in the first quarter of 2012, after 6 years of steady growth • Legacy Foresight believes this is due to the recession and apprehensive legators writing smaller cash gifts into their Wills • Cash legacies account for 8% of all legacy income, whilst residual legacies represent almost 87%
- 15. Sector Perspectives • PR Exercise • Report in Third Sector (18 February 2014) states survey by Key Retirement Solutions finds that only 25% of respondents plan to support charities in their Wills • 2,064 people polled commissioned by Key Retirement Solutions (Retirement Services Firm) and carried out by the online polling company YouGov • 60% of those surveyed did not believe leaving a legacy gift was important
- 16. Sector Perspectives • Research has found a higher proportion of younger people planned to leave gifts to charity in their Wills than older people • Increase awareness amongst supporters museums/arts charities - amongst those surveyed who were planning to leave legacy gifts, the top cause to support was cancer charities and animal welfare was the second most popular choice
- 17. Sector Perspectives • 58% of respondents to the survey said they would make legacy gifts because they wanted to support causes with which they had a personal association • Only 5% of those who would leave money to charity in their Wills said it would be for tax reasons • Tax may not be the primary motivating factor, but may be a lack of awareness or encourage people to give more (particularly high earners) • 40% who responded to the survey said reputation was a key factor
- 18. Sector Perspectives • 46% said their choice was down to a charity’s mission statement, aims and values • Most important factor cited in choosing which charity to support was having a personal link to it • Useful to make supporters aware of the potential tax benefits of bequeathing money to charity and to consider this when preparing a Will
- 19. Register of Mergers • Provisions originally introduced by Charities Act 2006 • Register of Mergers intended to ensure legacy income to merged charities does not “fall through the net” • Provisions now in Charities Act 2011 • Charities must be aware if contemplating merger • Provisions not fool proof • Lord Hodgson’s Review of the Charities Act 2006 proposed amendment
- 20. Register of Mergers • Whether or not Register of Mergers will take effect as intended depends upon wording used in Wills • Many merged charities still retained as dormant “shell charities” to receive future legacy income • Plan ahead - legacies can be a surprise and unexpected
- 21. Types of Gift Pecuniary Legacy: fixed sum of money Specific Gift: gift of specific item (e.g. property, jewellery) Residuary Gift: a percentage of the net Estate
- 22. Points to consider in Appeal Literature Do: • Use the correct terminology • Encourage potential donors to seek legal advice: – Regarding types of gift most suitable for them/the charity – How best to ensure that their wishes are fulfilled – Having their Will/Codicil drafted by a Solicitor (STEP member)
- 23. Points to consider in Appeal Literature • There is no need to provide sample wording – It might encourage DIY Wills which run the risk of • The intended gift (or the whole Will) being invalid • Expensive costs (and/or bad publicity) of rectifying the mistakes • Do include the following information: – Full charity name – Charity address – Registered charity number
- 24. Inheritance Tax (IHT) and Charitable Gifts • A gift to a qualifying charity is exempt from IHT – The charity receives the entirety of the gift – The IHT amount payable by the Estate is reduced – Possible to eliminate IHT altogether • Although reducing the IHT paid, a gift to charity affects the amount received by other non-charitable Beneficiaries
- 25. Points to consider in Appeal Literature • The charity exemption appeals to many potential donors – But ensure that explanation is not misleading • Encourage potential donors to seek professional advice on IHT – Especially if there is a mixture of charitable and non-charitable Beneficiaries
- 26. Inheritance Tax (IHT) – the “10% reduced rate” Tax rate reduced if charitable gift is 10% or more of net Estate IHT rate reduced from 40% to 36% Lower rate applies to testators who die on or after 6 April 2012 The “10% test” components Incentives for potential donors
- 27. The “10% test” Gross Estate (assets in sole name) £500,000 Less Nil Rate Band -£325,000 Net estate for “10% test” £175,000 Gift to charity of £17,500 to qualify 10% might sound like a lot to potential donors but only 10% of net estate Could encourage more people to give to charity to get the benefit of the rules
- 28. The 3 components to the 10% test the survivorship component •assets that the deceased owned as a beneficial joint tenant, for example a joint bank account or a house the settled property component •assets in which the deceased had an interest in possession, for example an interest in the income of certain trusts the general component •assets within the deceased’s estate for inheritance tax purposes except for the survivorship component, the settled property component and assets in which the deceased had reserved a benefit, for example a house they had given away but continued to occupy.
- 29. The 3 components to the 10% test • The test compares two amounts: – the donated amount = total value of assets in the component that qualify for the charity exemption from inheritance tax under existing rules – the base line amount= net value for inheritance tax purposes of the assets in the component after deducting exemptions’ relief and the appropriate portion of the nil rate band but adding back in the value of assets in the component to which the charity exemption applies
- 30. Potential advantages Encourages more people to make gifts Supporters may be encouraged to increase existing gifts Can lead to increased post- death variations
- 31. Points to consider in Appeal Literature Ideal opportunity to raise awareness and to promote: •Leaving a gift to charity by Will •Reviewing any existing gifts Possible Deeds of Variation
- 32. Points to consider in Appeal Literature • Technical points: – Advantages of the current IHT charity exemption – The “cost” to non-charitable Beneficiaries is reduced – The “10% test” is based on the net Estate – Increasing an existing gift might benefit charity and other Beneficiaries
- 33. Take care Only for deaths on/after 6 April 2012 Ensure that wording is not misleading Encourage potential donors to seek professional advice
- 34. In Summary Donating to charity in a Will has always been tax efficient and the IHT rules are designed to encourage charitable giving by increasing the tax benefits. Charities can look at taking advantage of these opportunities to increase legacy income
- 35. Any questions?
- 36. Gerry Morrison gerry.morrison@rollits.com Andrew Digwood andrew.digwood@rollits.com Sarah Greendale sarah.greendale@rollits.com www.rollits.com