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Bequests or gifts prior to death?

Discuss all aspects of charitable giving - financial or volunteering.
DrFfybes
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Bequests or gifts prior to death?

#672384

Postby DrFfybes » July 3rd, 2024, 12:45 pm

MrsF and I give to various charities, and are currently in the process of Guide Dog fostering.

As part of the training [1] we get various presentations on the Guide Dogs, what they do [2], how they are funded, etc. It seems a large percentage of their income is from bequests. This got me thinking, as we are looking to avoid charity bequests in our Wills.

Having been Executor or helpd in the duties thereof in Estates with Charity bequests, they were probably the most stressful/irritating part of the process. I have since learnt that the best route is to be ineffcient, tardy, and simply wait for them to contact you. My approach of getting the money in promptly and paying the Bequests forst has ALWAYS resulted in the institutions stll writing a months or a year after the Estate is setlled, with their letter firmly reminding you of your duties to pay them their dues, and with the consequences of not doing so spelt out in rather threatening terms. Considering Christies use a Will Scanning firm that paid its directors £9m in the year then obviously it is lucrative business, so apart from the hassle for Executors, leaving money in a Will appears to not mean it all goes to the charity.

The other downside is that they simply get the amount. If one wanted to leave £10k to a charity then if they were to make that donation prior to death the charity would potentially benefit from Gift Aid. Additionally I would potentially get Higher Rate tax relief, and as a Charitable Gift AIUI the Gift is ignored for IHT calcs.

Consequently one-off or regular gifts seem far more efficient than Bequests.

Am I missing something?

Paul

[1] A large number of people on the course thought they were getting a free pet. There were some surprised faces as they slowly realised they are getting a working dog which needs very different treatment and conditioning to rspond (or not) to different stimuli, with one potential recruit asking why their child couldn't throw a ball for 'their' dog.
[2] A lot of (re)habitation for people with sight loss, training, support, home visits, etc.

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Re: Bequests or gifts prior to death?

#672397

Postby Urbandreamer » July 3rd, 2024, 2:11 pm

DrFfybes wrote:Consequently one-off or regular gifts seem far more efficient than Bequests.

Am I missing something?


At the margins it depends upon the size of the estate.
If you leave more than 10% to charity then first, that bequest will be will be set aside before CGT calculations.
At that point the tax would be no different than gifting it as a POT.
However the IHT tax rate would then reduce from 40% to 36%.
Leading to less tax being paid upon the remainder.

We have debated expending effort to avoid IHT recently. Lootman and others have questioned using pensions to avoid IHT. I'm sure the same bunch who argued that will similarly accept your comments about the efforts on the executor and simply have the estate pay more tax.

Of course nothing prevents adopting both methods of charitable giving.

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Re: Bequests or gifts prior to death?

#672400

Postby Lootman » July 3rd, 2024, 2:17 pm

DrFfybes wrote:The other downside is that they simply get the amount. If one wanted to leave £10k to a charity then if they were to make that donation prior to death the charity would potentially benefit from Gift Aid. Additionally I would potentially get Higher Rate tax relief, and as a Charitable Gift AIUI the Gift is ignored for IHT calcs.

Consequently one-off or regular gifts seem far more efficient than Bequests. Am I missing something?

I don't think so other than the 40%/36% IHT deal that can apply with charitable bequests as mentioned above. That may or may not be worth more than the Gift-Aid.

Recently I have been leaning more towards solutions that avoid probate, or at least that avoid those I care about having to deal with probate and the potential personal liabilities that apply to executors.

So one could do the opposite and pay out gifts to your beneficiaries whilst alive and then leave the balance to charities, in which case the charity could be the executor and deal with all that crap.

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Re: Bequests or gifts prior to death?

#672404

Postby DrFfybes » July 3rd, 2024, 2:43 pm

Lootman wrote:I don't think so other than the 40%/36% IHT deal that can apply with charitable bequests as mentioned above. That may or may not be worth more than the Gift-Aid.

Recently I have been leaning more towards solutions that avoid probate, or at least that avoid those I care about having to deal with probate and the potential personal liabilities that apply to executors.

So one could do the opposite and pay out gifts to your beneficiaries whilst alive and then leave the balance to charities, in which case the charity could be the executor and deal with all that crap.


Yes - I'd ignored the 40/36% thing as that isn't as big a factor apart perhaps for the beneficiaries, however the 10% to charity always outstrips the IHT saved.

The latter idea of making regular large gifts and leaving the bulk of the remainder to charity is one I had not considered. The downside/upside is the temptation that if you survive 7 years then you can give more to family and less goes to charity.

Paul

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Re: Bequests or gifts prior to death?

#672409

Postby Urbandreamer » July 3rd, 2024, 3:00 pm

A further thought occurred to me.

It is true that gift aid can increase the amount that the charity gets. However this is only true if you pay income tax. I have chosen to spend money that currently would be subject to IHT. As I don't pay income tax, no gift aid.

So, as I indicated, you need to think about your personal circumstances and ideology when thinking IHT. Or ignore those things and accept that more tax may be paid than is needed. As I think Roy Jenkins said IHT is a “voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue".

As for the amount going to beneficiaries other than charity. You may or may not be right as it depends if the charitable gifts before death reduce the estate by 10%.
It also presupposes that the amount going to other beneficiaries is the top priority.

I suppose that it depends upon your view of the importance of the money to your charity, your other beneficiaries and to the government.

Oh and as for probate, if you have a house, then you will be subject to probate regardless of if the calculations show that no IHT is due.

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Re: Bequests or gifts prior to death?

#672410

Postby Lootman » July 3rd, 2024, 3:09 pm

Urbandreamer wrote:as for probate, if you have a house, then you will be subject to probate regardless of if the calculations show that no IHT is due.

That depends. If you own a house with another person as a joint tenancy then no probate is needed to transfer ownership to the surviving tenant, as that happens automatically upon your death.

If that surviving owner is not your spouse then some IHT may be due but that can be settled outside of probate and directly with the taxman.

The same applies to any asset owned jointly - it bypasses probate upon the first death. If you own everything jointly with a spouse then there is no probate and no IHT.

A better example might be assets that cannot be owned jointly, such as ISAs and premium bonds. Then you may need probate.

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Re: Bequests or gifts prior to death?

#672431

Postby scrumpyjack » July 3rd, 2024, 4:39 pm

I don't think you need to specify the Charities in your Will but can leave a separate letter of wishes advising your executor which specific charities you want the charitable bequest to go to. That avoids the problem of greedy charities annoying the executor.

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Re: Bequests or gifts prior to death?

#672458

Postby Howard » July 3rd, 2024, 6:24 pm

There is a good argument that giving significant gifts to charity is best planned like an investment strategy.

Around the age of 40 or 50 one probably can get an idea of how affluent one might be later in life and if one’s prospects are good, that’s probably the ideal time to start planning bequests or gifts.

Excluding poor widows living in multi million pound houses with no disposable income, under current rules, if one is concerned about IHT bills then, surely, it’s a sign of affluence? And worth planning how to give away some wealth.

Someone who was lucky/skilful enough to have a well-paying, salaried job may, in middle age, be in the process of paying over a million in income tax so should be aware of the benefits of gift aid for higher rate taxpayers. Others who have also been lucky/shrewd enough to avoid income tax on earnings will be pretty sophisticated about tax matters.

It can be very rewarding to develop a strategy to give away significant amounts before it’s too late. The priority might be houses for children, blind trusts for grandchildren etc. These are incredibly simple to implement and involve no admin for executors if one lives for seven years after the gifts are made.

Gifts to charities are also absolutely admin free. For a wealthy investor it will be rewarding to select a concentrated portfolio of charities, perhaps only one or two. Research them well and, given potential gifts are significant, meet the Charity CEO/ University Vice Chancellor/ Leader to check them out. A middle aged supporter doesn’t have to give a massive single gift, a commitment for a significant annual amount will be highly valued by a charity.

Treating charitable gifts like an investment portfolio means that one’s “investments” never lose value, they only increase as the years go by. Charities also tend to be great at involving committed supporters and at events one can meet some fascinating people (including famous investors who are so successful they have to shed cash!)

An easy way to avoid hassle for your executors is to give fixed amounts to charities in your will. They will be very happy to receive the gifts and will have no reason to pursue executors.

The most efficient wills, in my view, leave the residual of the estate to children or other individuals who are motivated to sort things out speedily.

So ideally, for a successful investor, it’s worth planning gifts to make a significant impact. And given a good investment climate, there’s always more to dispose of if one doesn’t want to pay too much tax.

regards

Howard

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Re: Bequests or gifts prior to death?

#672467

Postby 88V8 » July 3rd, 2024, 7:55 pm

Howard wrote:An easy way to avoid hassle for your executors is to give fixed amounts to charities in your will.

Yes, I have read that one should never leave them a percentage, or they will be on the executors' back to maximise the value of the estate.

V8

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Re: Bequests or gifts prior to death?

#672523

Postby Lootman » July 4th, 2024, 6:57 am

88V8 wrote:
Howard wrote:An easy way to avoid hassle for your executors is to give fixed amounts to charities in your will.

Yes, I have read that one should never leave them a percentage, or they will be on the executors' back to maximise the value of the estate.

Agreed. The one possible exception is where you decide to give all your bequests to family whilst you are alive. You could then leave the residue to a charity AND make that charity the executor.

Then upon your death there is no work for your family to do, other than a funeral. The charity has all the hard work and stress of locating the residual assets, getting a grant of probate and acquiring the assets. And paying for it all.

Although if your gifts in the prior 7 years exceed your estate's nil rate band, then there might still be disputes if the charity learns about them and tries to get those recipients to pay some of the IHT due.

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Re: Bequests or gifts prior to death?

#672529

Postby DrFfybes » July 4th, 2024, 8:01 am

Howard wrote:An easy way to avoid hassle for your executors is to give fixed amounts to charities in your will. They will be very happy to receive the gifts and will have no reason to pursue executors.


This was exactly what my mum did, even naming the charity and their registration nume to avoid confusion. BHF lost the form I filled in at the store when I made a card payment and sent a reminder of my olbigations almost a year later, the Christies letter was much swifter and detailed the firm they use to trace bequests and pointed out the legal consequences of not responding, before asking slightly more politely for the money. I was so p£$%^d off at the tone of the Christies letter I almost decided to ignore it until it went to court then I could produce the receipt and a copy of the payment statement just so it would cost them more than they got.

Paul

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Re: Bequests or gifts prior to death?

#672535

Postby Howard » July 4th, 2024, 8:52 am

Lootman wrote:
88V8 wrote:Yes, I have read that one should never leave them a percentage, or they will be on the executors' back to maximise the value of the estate.

Agreed. The one possible exception is where you decide to give all your bequests to family whilst you are alive. You could then leave the residue to a charity AND make that charity the executor.

Then upon your death there is no work for your family to do, other than a funeral. The charity has all the hard work and stress of locating the residual assets, getting a grant of probate and acquiring the assets. And paying for it all.

Although if your gifts in the prior 7 years exceed your estate's nil rate band, then there might still be disputes if the charity learns about them and tries to get those recipients to pay some of the IHT due.


An interesting idea. Is that what you and Mrs L have done?

regards

Howard

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Re: Bequests or gifts prior to death?

#672541

Postby Lootman » July 4th, 2024, 9:28 am

Howard wrote:
Lootman wrote:Agreed. The one possible exception is where you decide to give all your bequests to family whilst you are alive. You could then leave the residue to a charity AND make that charity the executor.

Then upon your death there is no work for your family to do, other than a funeral. The charity has all the hard work and stress of locating the residual assets, getting a grant of probate and acquiring the assets. And paying for it all.

Although if your gifts in the prior 7 years exceed your estate's nil rate band, then there might still be disputes if the charity learns about them and tries to get those recipients to pay some of the IHT due.

An interesting idea. Is that what you and Mrs L have done?

regards

Howard

No we have not. It is merely something we have considered. And it might only make sense for the one of us who survives the other.

Anyway for now all such planning is on hold, pending any changes to the rules that the new government may make.

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Re: Bequests or gifts prior to death?

#672564

Postby Howard » July 4th, 2024, 10:50 am

DrFfybes wrote:
Howard wrote:An easy way to avoid hassle for your executors is to give fixed amounts to charities in your will. They will be very happy to receive the gifts and will have no reason to pursue executors.


This was exactly what my mum did, even naming the charity and their registration nume to avoid confusion. BHF lost the form I filled in at the store when I made a card payment and sent a reminder of my olbigations almost a year later, the Christies letter was much swifter and detailed the firm they use to trace bequests and pointed out the legal consequences of not responding, before asking slightly more politely for the money. I was so p£$%^d off at the tone of the Christies letter I almost decided to ignore it until it went to court then I could produce the receipt and a copy of the payment statement just so it would cost them more than they got.

Paul



Yes, I'm sympathetic but my suggestion was addressed to those who have significant assets, interested in the impact of IHT and might be giving individual bequests of, say £10,000 or more to a few charities. It’s an easy task for an executor to transfer the funds by bank transfer and there will, surely, be no doubt about the receipts. In my experience from the charity side this will result in each charity sending a grateful acknowledgment of the gift.

A confident wealthy investor who is looking ahead to the inevitable will surely be able to decide who should benefit from their will and be able to clearly and simply state it. They should also respect their executors by communicating their wishes clearly whenever they write a new will.

It is sensible for the donor to be open so their executors are briefed and understand what their role is and, hopefully, are in sympathy with the donor’s wishes. This minimises any admin and protects the executors who can confidently carry out the donor’s bequests.

From the donor’s viewpoint it is also better to explicitly leave fixed amounts to stated charities. Is it cynical to suggest that advisors who promote “expressions of wishes leaving the choice of charities to executors” are trying to add unnecessary complications after death which they will earn exorbitant fees sorting out?

If one changes one’s mind about who to support, the cost of updating a will is peanuts compared with IHT etc.

On a forum like this, I'd argue it is valid to suggest that investors who claim to have expertise in building their successful portfolios (and their partners) have the nous to decide who should benefit from their good fortune while they are alive and after they die.

regards

Howard

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Re: Bequests or gifts prior to death?

#672569

Postby scrumpyjack » July 4th, 2024, 11:03 am

My mother did name a specific charity in her Will. The problem was that by the time she died, the Charity had long ceased to exist. It was quite a palaver for my brother, as joint executor with me, to sort out. Fortunately he was a solicitor and I a chartered accountant. A separate letter of wishes might have made it simpler.

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Re: Bequests or gifts prior to death?

#672572

Postby Lootman » July 4th, 2024, 11:15 am

scrumpyjack wrote:My mother did name a specific charity in her Will. The problem was that by the time she died, the Charity had long ceased to exist. It was quite a palaver for my brother, as joint executor with me, to sort out. Fortunately he was a solicitor and I a chartered accountant. A separate letter of wishes might have made it simpler.

I would have thought that there is a standard phrasing for Wills that covers the possibility of a charity ceasing to exist. After all a Will generally covers the case of a beneficiary dying before the willmaker.

Such a provision could be that the bequest is to be directed to another charity deemed materially similar according to the judgement of the executor, or some such.

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Re: Bequests or gifts prior to death?

#672578

Postby scrumpyjack » July 4th, 2024, 11:38 am

Lootman wrote:
scrumpyjack wrote:My mother did name a specific charity in her Will. The problem was that by the time she died, the Charity had long ceased to exist. It was quite a palaver for my brother, as joint executor with me, to sort out. Fortunately he was a solicitor and I a chartered accountant. A separate letter of wishes might have made it simpler.

I would have thought that there is a standard phrasing for Wills that covers the possibility of a charity ceasing to exist. After all a Will generally covers the case of a beneficiary dying before the willmaker.

Such a provision could be that the bequest is to be directed to another charity deemed materially similar according to the judgement of the executor, or some such.


Yes that's what we did


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