Legacy Giving
Getting it Right
19 March 2014
What can happen when
legacies go wrong?
Andrew Digwood
Partner
What can happen when legacies go
wrong?
• Conflicting duties of charity trustees around legacies
• “The RSPCA cases” - two...
RSPCA v Sharpe - the facts
The facts
• Prior gifts to family and friends - residue to
the charity
• Beneficiaries’ positio...
RSPCA v Sharpe - the Court’s decision
1st instance - critical of the
charity
“Putting a burden on the
deceased’s relatives...
Gill v Woodall - the facts
• Mr & Mrs Gill - mirror wills to each other and in default to
the RSPCA
• 1999 - Mr Gill’s dea...
Gill v Woodall - the Court’s decision
• Dr Gill’s 1st instance claim
• Mrs Gill knew and approved contents of her will, bu...
Reducing likelihood of disputes - What
can charities do?
• Legacy disputes rare compared to amount of wealth
gifted to cha...
Managing legacy disputes - What can
charities do?
• Conflicting duties for Trustees - Reputation v Maximising
Assets
• Man...
Legacy Giving – Practical Advice
Gerry Morrison
Partner
Sarah Greendale
Solicitor
Topics for today
• Sector Perspectives
• Register of Mergers - impact upon legacy income
• Types of Gift
• Reduced 10% Inh...
Sector Perspectives
• Legacy Monitor Consortium (Legacy Foresight)
• Analysis of the Legacy and In-Memoriam Sectors
• Appr...
Sector Perspectives
• Data shows average residual values of £53,600
• Residual value = remainder of the estate left after
...
Sector Perspectives
• Data also showed cash legacies have been falling
gradually from a high of £3,700 in the first quarte...
Sector Perspectives
• PR Exercise
• Report in Third Sector (18 February 2014) states survey
by Key Retirement Solutions fi...
Sector Perspectives
• Research has found a higher proportion of younger
people planned to leave gifts to charity in their ...
Sector Perspectives
• 58% of respondents to the survey said they would make
legacy gifts because they wanted to support ca...
Sector Perspectives
• 46% said their choice was down to a charity’s mission
statement, aims and values
• Most important fa...
Register of Mergers
• Provisions originally introduced by Charities Act 2006
• Register of Mergers intended to ensure lega...
Register of Mergers
• Whether or not Register of Mergers will take effect as
intended depends upon wording used in Wills
•...
Types of Gift
Pecuniary
Legacy: fixed
sum of money
Specific Gift:
gift of specific
item (e.g.
property,
jewellery)
Residua...
Points to consider in Appeal Literature
Do:
• Use the correct terminology
• Encourage potential donors to seek legal advic...
Points to consider in Appeal Literature
• There is no need to provide sample wording
– It might encourage DIY Wills which ...
Inheritance Tax (IHT) and Charitable
Gifts
• A gift to a qualifying charity is exempt from IHT
– The charity receives the ...
Points to consider in Appeal Literature
• The charity exemption appeals to many potential donors
– But ensure that explana...
Inheritance Tax (IHT) – the “10%
reduced rate”
Tax rate reduced if
charitable gift is
10% or more of
net Estate
IHT rate r...
The “10% test”
Gross Estate (assets in sole name) £500,000
Less Nil Rate Band -£325,000
Net estate for “10% test” £175,000...
The 3 components to the 10% test
the survivorship
component
•assets that the deceased
owned as a beneficial joint
tenant, ...
The 3 components to the 10% test
• The test compares two amounts:
– the donated amount = total value of assets in the comp...
Potential advantages
Encourages
more people to
make gifts
Supporters may
be encouraged
to increase
existing gifts
Can lead...
Points to consider in Appeal Literature
Ideal opportunity to raise
awareness and to promote:
•Leaving a gift to charity by...
Points to consider in Appeal Literature
• Technical points:
– Advantages of the current IHT charity exemption
– The “cost”...
Take care
Only for deaths
on/after 6 April
2012
Ensure that
wording is not
misleading
Encourage
potential donors to
seek p...
In Summary
Donating to charity in a Will has
always been tax efficient and the
IHT rules are designed to
encourage charita...
Any questions?
Gerry Morrison
gerry.morrison@rollits.com
Andrew Digwood
andrew.digwood@rollits.com
Sarah Greendale
sarah.greendale@rollit...
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Legacy giving

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Legacy giving

  1. 1. Legacy Giving Getting it Right 19 March 2014
  2. 2. What can happen when legacies go wrong? Andrew Digwood Partner
  3. 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. 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. 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. 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. 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. 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. 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. 10. Legacy Giving – Practical Advice Gerry Morrison Partner Sarah Greendale Solicitor
  11. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 35. Any questions?
  36. 36. Gerry Morrison gerry.morrison@rollits.com Andrew Digwood andrew.digwood@rollits.com Sarah Greendale sarah.greendale@rollits.com www.rollits.com

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