I am dealing with an estate where one of the beneficiaries wishes to vary his one third share of the residue to give 10% of the residue to charity and the balance to a group of individuals. The beneficiary is also the only proving executor. This is so that the estate can benefit from the reduced rate of IHT. The other two thirds go to his two brothers. He wants the balance of his share to benefit from the reduced rate of IHT, rather than the remaining two thirds.
Do the two brothers need to be parties to the variation, given that their shares are essentially unaffected?
The balance is to go to various individuals, including such grandchildren of the original beneficiary as are born before the second anniversary of the deceased’s death. Apart from the fact that the beneficiaries will have to wait for two years to receive anything, is there any other objection to including such a provision?
If it is only 10% of a 1/3 share of the estate going to charity, I do not believe there will be any reduced rate of IHT available. My understanding is that the 10% gift needs to be applied to the whole estate, not just 1/3 of it…
R Rodgers
Heir Tight Wills & EP Ltd
The description of the variation was that it would be such as to give 10% ‘of the residue’ rather than 10% of the beneficiary’s share of the residue.
So if the beneficiary receives 33.3% of the estate under the will and varies his gift to give 10% to charity, he gives away 10% of the estate and not 10% of his share.
I would have thought there are a few points that need to be considered on the IHT side of this question.
Firstly, the amount to be redirected needs to be 10% of the baseline amount for the Estate component which may be more or less than 10% of the residue depending on the value of legacies and available NRB. HMRC’s form IHT430 can help in calculating what that amount is.
Secondly, any DoV will need to be presented to and acknowledged by the charities concerned under the new provisions.
Finally, as the residue is normally split after the payment of IHT any reduction in the IHT liability will be shared amongst all beneficiaries unless the DoV provides otherwise which will require the other beneficiaries to be party to the deed.
As others have said before me, the brothers would need to be party otherwise their 1/3 shares would both benefit from the IHT reduction. I suggest calculating the 10% requirement as a fixed amount, recalculating the net estate after the reduced IHT rate and exempt charitable legacy and then reallocating the percentages so that the shares of the two brothers are reduced to get them back to the same net cash figure. I would not attempt to give the charities an actual percentage of the residue as the calculations would be fairly horrific (albeit probably easier for others).
Thank you, Nigel. You mention that the deed of variation should be presented to the charities concerned. Do you know where it states this? I have been unable to find any reference so far. The beneficiary wants the deed to state that the 10 per cent goes to ‘such charities as he shall select’.