10% to charity to get 36% IHT rate - combined Trust and Estate

Good evening,

I have an estate which is leaving 10% to charity combining two components of a life interest trust with the estate to get the 36% rate. The two elements are sizeable and the legacy is payable from the estate

"I give the Charity… such a sum as together with any other gifts to charity made under my Will or any codicil shall constitute a donated amount equal to 10% of the baseline amount in relation to the aggregate of the general component and survivorship component and settled property component and reservation of benefit property of my estate.”

We do not have probate yet and my clients are keen that the charity get the money as soon as possible. They have suggested appropriating some of the trusts share portfolio (£700k) to the charity and paying the rest once we get probate. Presuambly these would be shares with the most gain but this is not their main motivation. The charity is entitled to receive the sum which was 10% at date of death.

I have a niggle as to whether they can do this. I can see an argument for both sides.

Can they do this?

Miriam Spero

Miriam, I’m not quite clear when you say “combining two components of a life interest trust”. Is there a life interest trust fund created by the Will for someone else after which it goes to the charity (unlikely from the wording of your question) or is there an existing life interest trust of which the deceased was the life tenant and on death passes to charity?

Irrespective, I’m not sure if the executors would be able to appropriate a part of the portfolio to the charity before probate has been registered with the portfolio managers unless of course they were agreeable (unlikely I would say)

Patrick Moroney

With regard to the last paragraph of Patrick’s observations, I can see no reason why executors should not be able to appropriate the portfolio of investments to the charity before probate has been obtained. I accept that the portfolio managers will not be able to accept instructions from the charity (or the executors) before probate is registered with them. However, appropriation is merely dealing with the beneficial interest, not the legal interest. The portfolio managers need not even be aware of the appropriation, mindful that their mandate should have terminated in any event upon being advised of the death of their client.

Mindful of the significant size of the intended appropriation, the executors should be aware that it will give rise to an unequal disy=tribution between the beneficiaries and that they will need to make appropriate adjustments between the beneficiaries.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I accept what you say Paul that the executors can appropriate shares but Miriam said that her clients were keen that the charity got some of the money as soon as possible and paying the rest when probate has been obtained. I don’t quite see how appropriating the shares now will enable this to be done.

Patrick Moroney

Fair point Patrick.

I understand that there are a number of financial institutions that will make loans, secured on an inheritance in these circumstances. Whether a charity would be willing to enter into such an arrangement may be doubtful, unless it was in urgent need of funds. I believe that some of them advertise via the Today’s Wills & Probate website, although have no personal experience of any of them. It may be that where assets have been appropriate pre-probate, the beneficiary might be able to secure a better rate than if their interest is only in the unadministered estate.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

I read the original posting as there being a free estate and a settled estate with the will leaving a legacy of 10% to the charity calculated by ref to the combined components with the question being whether the portfolio in the settled estate could be used to part pay the legacy in the free estate.

I would say no as the legacy is to be paid form the free estate. Combining the components for IHT does not change that.

I must say that when I first read the question I was a little confused too. Having read the replies posted, I reread the question.

The deceased’s Will leaves a legacy to charity the quantum of which is to be determined by reference to all the permitted components. We are told there is a free estate and a trust fund. We are also told that the Trust Fund holds an investment portfolio.

We are not told who the “clients” are: whether they are the Executors, the Trustees or the Beneficiaries. We are not told the nature of the Trust and whether the deceased had a life interest in it that came to an end on death. We are not told if the beneficiaries of the Estate and the Trust are identical both in identity and proportion.

I believe it is possible for the Trustees to instruct the portfolio managers to sell the investments the Clients wish to “appropriate”. It will also be possible for the Trustees to lend the proceeds to the Executors to enable the Executors to make an early payment to the Charity. However, the Executors cannot appropriate the investments because they do not form part of the Estate, as Nigel Scase says.

The sales could cause CGT problems for the Trust’s Beneficiaries as the investments would be held as Bare Trustees for them (assuming that there was a life interest that came to an end on the deceased’s death). Therefore, I think that these Beneficiaries would have to consent to the plan.

Graeme Lindop
Probate Consultant
Coles Miller Solicitors LLP