24th May 2023

Maximising IHT benefits: the importance of carefully drafting Wills for charitable bequests

Mary Elliott

Partner

An article published by Civil Society sets out some of the reasons why testators might be reluctant to leave bequests to charity. However, there can be an inheritance tax (IHT) advantage in doing so.

Most clients seeking to make a Will are aware of the exemption from IHT for gifts to charity, and of the reduction in the rate of IHT applicable to an estate from 40% to 36% where at least 10% of the net estate has been left to charity.

It is key that Wills leaving gifts to charity are carefully drafted. The Will should identify the charity(ies) precisely so as to avoid any confusion. Thought should be given to the testator's wishes in the event that the charity concerned no longer exists at the date of death.

The rules governing the reduced rate of IHT are intricate and require consideration of the testator's overall financial position. A charity may not be able to accept conditions attached to a gift if the conditions are not aligned with the organisation's charitable purposes.

Importantly, where a Will leaves a substantial gift to charity which is later revoked or reduced either by a codicil or a new Will, it is essential that the file meticulously records the testator's reasons for removing or reducing the gift, and that, if appropriate, steps are taken to verify the testator's mental capacity at the time the change is made.

Charities are under an obligation to optimise their income from testamentary bequests, and may need to investigate a situation if they become aware that they have lost out due to a change in the will, particularly if this takes place late in the testator's life.

We are happy to advise on any aspect of making a Will leaving a bequest to charity.