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
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
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
