If you are named as an executor to the estate of someone who has died and they have left a gift to charity, there is a particular process you should follow in dealing with the legacy.
Charities rely on money left to them in Wills and where your loved one has included a charity bequest, it is likely to be because the cause is one that they believe in or that has helped them or a family member at some point.
Notify the charity
Once you have seen the Will and discovered that one or more charities have been named, you should contact the charity to let them know.
The charity trustees have a legal responsibility to act in the best interests of the charity, so they will need a certain amount of information from you, including the following:
- The deceased’s name, address and date of death
- Details of what the charity has been left
If the charity has been left a share of the residuary estate (rather than a fixed sum of money) the charity should also be provided with:
- A copy of the Will
- A list of the deceased’s assets and liabilities, when available
- Valuations of expensive assets
- A copy of the estate accounts, when available
- Form R185 in respect of the income paid to the estate during the administration period so that the charity can reclaim the tax paid
It is acceptable to simply send a notification at first, as some of the other documentation will not be available until later on in the administration process.
Gifts of specified sums or items – pecuniary legacies and specific legacies
If a charity is left a set amount, such as £5,000, this is referred to as a pecuniary legacy, while the gift of a named item is a specific legacy. Charity trustees should be provided with a valuation of a specific legacy and information about how and when it will be transferred to them.
Gifts of a share of the estate – residuary legacies
The gift of a proportion of the estate is referred to as a residuary legacy. If a charity is left a share of the residue, then they will have more interest in the winding up process, to include issues such as property sale and the agreed price for items that are being sold.
Charities will appreciate updates as to progress and estimates of when certain steps will be reached, such as when probate has been applied for, when a property is put on the market and a sale agreed and when it is anticipated that funds will be distributed.
If several charities have been included in the Will, they are usually agreeable to notifying each other of progress, so that the executor will only need to send updates to one organisation, who will pass on information, either to the other charities, or to one charity who in turn will notify the next so that a chain is formed.
Executors need to take care to deal correctly with Inheritance Tax when distributing an estate that includes a residuary gift to charities. Charities are exempt from Inheritance Tax, so money left to them should not have any deduction made. This can make matters complicated if other residuary beneficiaries are not exempt from Inheritance Tax and it may be advisable to speak to an expert probate solicitor to ensure the issue is dealt with correctly in the estate accounts.
If 10% or more of the estate has been left to charity, it should be noted that a reduced rate of Inheritance Tax of 36% is payable on the part of the estate that is liable to tax.
Paying a legacy to a charity
Once the estate administration has been completed, the charity should be sent the final accounts for approval if they have been left a residuary gift. They will also wish to see an income account for the administration period.
The charity will approve the accounts and the sum in question can be sent to them along with a receipt which the trustees will sign and return to the executor.
If you would like to speak to one of our expert estate planners, ring us on 01634 353 658 or email us at [email protected]