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Beware charities

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I advise clients not to leave a gift of residue to a charity their wills. By all means leave a specific sum to charity but if you want to make a charitable gift of residue, set up your own charitable trust and leave the gift to that trust in your will. You can tell the trustees that you would like them to pay the amount to a specified charity, but leave it to their discretion whether or not to do so.

The reason is that charities seem to be very litigious. In The Woodland Trust v Loring [2014] EWCA Civ 1314, Mrs Smith left to her family an amount equal to her IHT nil rate band and the balance to several charities one of which was The Woodland Trust. Happily, because of the transferable nil-rate band (under which a surviving spouse can use the deceased’s spouse’s unutilised nil-rate band) that meant the family would get £650,000. ‘No way!’ said The Woodland Trust. ‘When Mrs Smith made her Will, the transferable nil-rate band did not exist so she must have intended to leave only £325,000 to her family and the rest to us.’ Fortunately, both the judge and the Court of Appeal disagreed. It was clear to them that Mrs Smith’s objective was to pay no IHT. She intended to give her family as much as possible but not so as to trigger IHT. What was left could go to The Woodland Trust and other charities, as a gift to charity is exempt from IHT. Because of the transferable nil-rate band, what was left was the excess over £650,000.

Now we have Beasant v Royal Commonwealth Society for the Blind [2022] EWHC 1319 (Ch) (known as Sightsavers). Mrs Arkell gave to her friend, Ms Beasant ‘the largest sum of cash which could be given ... without any inheritance tax becoming due in respect of the transfer of value of my estate which I am deemed to make immediately before my death.’ She then made some specific gifts and left the residue of her estate to charities, one of which was Sightsavers. Mr Beasant thought that he was going to get £325,000. Sightsavers thought otherwise. Later provisions in the will gave specific gifts to other people which exceeded £325,000. Accordingly, nothing could be given to Mr Beasant without triggering IHT. The High Court agreed.

It agreed in spite of the fact that the will-drafter had told Ms Arkell that she could give £325,000 to Mr Beasant free of tax but had also told her that the later gifts would trigger some IHT on her estate. ‘Tough luck’, said the judge, ‘a will has to be construed like a contract.’ The courts’ role is to interpret the wording used in the will, not to determine what the testator intended. A court can look at her intention only to the extent that the will is ambiguous and her intention will clear up that ambiguity. In this case, Mr Beasant’s barrister said that what created ambiguity was the order of the gifts in the will. ‘Not enough,’ said the judge, ‘you have to show that the words actually used in the will are ambiguous, and in this case they are not’.

Not only are charities litigious but they tend to use large, and expensive, firms of solicitors, so if they win, the family could find themselves landed with massive costs.

Some charities say that they are not money-grabbing thugs in suing an estate. They have a legal duty to do so. No they don’t! They have a legal duty to act in the best interests of their beneficiaries. The Charity Commission has made clear that a charity is entitled to turn away a donation if it thinks that accepting money from someone that the public is likely to regard as unsavoury is likely to damage their reputation. The same must apply to bequests. A charity need not look to obtain its ‘pound of flesh’ if litigating to seek to do so risks damaging its reputation.

I used to be a donor to The Woodland Trust, but not now. I might have left them a bequest in my Will, but not now. I suspect I am not the only one to be deterred from charitable giving by the long list of cases (Woodland Trust and Sightsavers are only the tip of the iceberg) in which a charity has opposed the testator’s family to try to get the last ounce of flesh from a testator’s generosity.

Deterring future donations for a small sum in hand cannot possibly be in the long-term best interests of a charity’s beneficiaries.

The issue is complicated by the IHT tax-break where a person gives 10% of the part of his estate over the nil-rate band to charity. The effect of this is that the government will contribute 64% of every £1 given to charity, which is clearly attractive to the charitably minded. It is particularly attractive where a person makes a significant specific gift to charity, as increasing that gift to 10% of the estate can actually reduce the tax on the remainder of the estate. What I am planning to do is gift a fixed amount to charity and leave with my will a letter to my residuary beneficiary saying: ‘You could reduce the IHT bill if you were to enter into a deed of arrangement to increase the gift to charity to 10% of the taxable estate.’ I am not sure though. I would not put it past a charity to contest the wording of the deed of arrangement!  

Robert Maas, Two cheers for the chancellor blog

Issue: 1580
Categories: In brief