Will - charity's share to be burden of tax

Trusts Discussion
1

Is this possible?

Client wants to leave 30% of the residue to charity and 70% of the residue to non-exempt beneficiaries.

However, client wishes for the 30% share passing to charities to bear the Inheritance Tax payment with the 70% passing to non-exempt beneficiaries passing free of tax.

Any pointers to find a suitable precedent for use would also be appreciated.

Thank you

Sally Runnacles
Farnfields

2

I think the difficulty with this puzzle is that the intended split is not really 70/30 of the residue, but 70/30 of the estate before IHT has been deducted (which is different), with the 30 bearing the IHT. Otherwise, I think we get into problems of circularity, as the tax is assessed with reference to the share given to the non-exempt beneficiary, but the share depends on the tax as well.

I would approach this by expressing the residuary gift roughly as follows (wording appropriately for the precedent in use):

  • a share of my residuary estate equivalent to 70% of the value of my estate before the deduction of inheritance tax to X (non-exempt beneficiary)
  • whatever remains of my residuary estate to Y (charity)

To be honest, I’m not convinced my solution exactly mirrors what your client wanted, but on the other hand, I go back to your first question, that I’m not convinced that what has been requested is logically possible… my brain has stopped working! I’d be interested to hear whether others agree/disagree.

Ben Leach
Molesworths Bright Clegg

3

Sally

I have found over the years that many clients [and others] think that charities are not subject to tax, so can be used to avoid payment of tax. In this case, it may be easier for the client to understand if you can estimate the anticipated size of the estate, and calculate the likely tax liability [and therefore the net inheritance] of each beneficiary under alternative arrangements.

I suspect that the client may wish to have second thoughts.

Kevin Mullen