In keeping with the spirit of the season, this is the time when many of us feel most inclined to give not only to friends, family and loved ones but to charity. Dickens brought it to light in A Christmas Carol and Scrooge became synonymous with mean spirited, turned generous, businessmen.
Taking this to heart this year are Mark Zuckerberg, co-founder and chief executive of Facebook, and his wife, Dr Priscilla Chan. They recently made headlines when on the birth of their first child, they pledged to give away 99 per cent of their wealth, an estimated £30 billion (or $45bn) over the course of their lifetimes, for charitable purposes. They join the ranks of many entrepreneurs and business people who, particularly in Scotland, have donated significant parts of their wealth to charity either during their lifetime or on death.
It has long been common practice for individuals to leave bequests in their Wills to charity. Whilst such bequests are made primarily for altruistic reasons, they also carry quite significant tax benefits. Gifts to charity are exempt for Inheritance Tax and can, therefore serve to decrease your overall Inheritance Tax liability on death. From 6 April 2012, even more emphasis has been placed on making charitable gifts under your Will, as opposed to lifetime gifting, as an estate can pay Inheritance Tax at a reduced rate of 36 per cent (instead of the usual 40 per cent) if 10 per cent or more of the ‘net value’ of your estate is left to charity on death.
Bequests in Wills make up a large proportion of charities’ revenue. Some charities do, as a result, now use private search agencies to comb through Wills, which become public documents following death and Confirmation (or Probate in England & Wales), for mentions or bequests in their favour so they can then pursue the payments left under the Will.
A prominent UK charity was recently criticised for doing just that and wrote to the deceased’s daughter to ask the very blunt question of whether her father was dead yet. The deceased, on this occasion, had left a legacy to the charity in her Will but only if she was not survived by her husband. Rather than waiting for the deceased’s executors to contact them directly regarding the bequest, the charity was very much on the front foot, and wrote to the deceased’s daughter, as an executor of her late mother’s estate, to confirm whether her father was still alive. He was, and the charity was not, therefore, entitled to anything under the Will.
Unfortunately, stories such as this are not altogether uncommon, and can be distressing to family members dealing with the loss of a loved one.
One alternative to making outright bequests to a charity in your Will is to set up a charitable trust drawn up under your Will. Setting up your own charitable trust allows you to appoint your own trustees to oversee a programme of annual donations after your death and, in doing so, to retain some control and oversight over the use of the charitable funds from year to year. More than one charity can benefit and this allows charity trustees to exercise flexibility in making charitable donations according to your original wishes.
If the charitable trust is set up under the will, or you leave a bequest in your Will to a charitable trust set up during your lifetime, then as long as the trust meets the prescribed test under the charity laws, this would have the same favourable tax treatment as if you left the bequest to a specifically named charity.
“If I could work my will,” said Scrooge indignantly in Dickens’ story, “Every idiot who goes about with ‘Merry Christmas’ on his lips, should be boiled with his own pudding, and buried with a stake of holly through his heart. He should!” The 1843 Victorian piece by Dickens is still just as relevant a morality tale, although it is now through the good example of Facebook entrepreneurs that it is being told. Well done Mark Zuckerberg!
• Peter Shand is a partner with Murray Beith Murray www.murraybeith.co.uk