10% Baseline Charity Clause Issue - Residue to Spouse

Trusts Discussion
1

Hi All,

I am instructed on a deceased’s estate. The deceased left a will with gifts to charity, approx. £100k to family, and residue to spouse.

From the will file, the deceased’s intention was to leave 12% of their estate to three charities (5%/5%/2%). The firm who drafted the will amended HMRC’s standard charitable clause to work out the percentages to go to charities rather than including it as part of the gift of residue.

“I give to [charity] such a sum as together with any other gifts to charity made under my will shall constitute a donated amount equal to X per cent (%) of the baseline amount in relation to the general component… “

First Issue: this gift is repeated for each charity with the percentages being 5%/5%/2%. Each states that the gift should take into account the other charity gifts to reach the specified percentage. On that drafting I don’t think their could ever be more than 5% of the baseline amount in total given as it is drafted to be shared between the gifts.

Second Issue: In my opinion the gifts would fail in any event due to how the baseline amount is calculated:

  • It produces a circular problem in that we can’t add the charity component back in without knowing the amount of gift going to them, to which we would need to know the amount of residue going to spouse, which cant be ascertained without knowing the amount going to the charities.
  • Even if the charity gift was ignored, with remainder after family gifts treated as passing to spouse) at this stage to work out the baseline, because the whole residue would go to spouse and the gifts to family are covered by NRB, the baseline formula calculation would come back as £0. On that basis 5% of £0 is £0.

Do readers agree with my assessment above or am I missing something?

Any advice appreciated as always.

Thanks

Joseph

2

On the basis of what is said, I tend to agree that the total amount passing to the charities may be limited to 5%. I offer no view as to whether this might even be nil in these circumstances.

I would be inclined to:

  1. Obtain the will drafter’s file to understand their instructions;

  2. Obtain an opinion from Chancery counsel as to the effect of the will and, if appropriate, if it is susceptible to rectification;

  3. Share the opinion with the charities, and spouse, so that they may consider what, if anything, they might do to resolve the situation.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

Getting geeky, I don’t immediately see that “circularity” is an issue as this type of problem can solved by iteration. Basically (1) guess at a value going to charity, (2) see what then goes to the spouse and (3) what the baseline amount is, then (4) use that to determine what goes to charity. Then increase or decrease what goes to charity in step 1 and repeat until your refined guess as to what goes to charity and what the percentage of the baseline going to charity is the same.

I’d normally do that kind of thing using Excel’s goal seek (other spreadsheets are available). If you do use a spreadsheet, make sure that you set things up so that you can’t have negative amounts going to the spouse. However, for the last reason you suggest, this may all be academic.