Optimising legacy income

Ashley Rowthorn Practical guidance for good legacy administration

A key role for a legacy officer is to optimise the value of legacy gifts and make the biggest impact possible for the legacy donor. Legacy Link consultants have added over £1,250,000 in legacy value to its charity clients in the past year, which makes a huge difference to the beneficiaries they serve.

Here are a few areas where the skill and experience of a legacy officer can add value to the amount of legacy income you might receive.

Properties

In most estates, the most valuable asset to be realised will be a property. Although tempting to agree to an informal offer made prior to marketing, unless there is a compelling reason otherwise, you should ask that at least 2 marketing appraisals are obtained from reputable agents, and then for the property to be marketed for a reasonable amount of time before accepting any offer. This ensures proper exposure to the market, and thus obtaining the best value for the property.

Capital Gains Tax and Appropriation

Charities are exempt from paying CGT, currently charged at 28% for deceased estates. If it seems likely that the sale of an asset will attract a charge of CGT, then ask the executor to appropriate the asset to the charity beneficiaries prior to sale and then sell it on their behalves as “bare trustee”, thus mitigating the tax.

If a property is appropriated it will bring into effect S119 of the Charities Act 2000 as the asset is then deemed to be held on trust for the charity.  S119 requires that a qualified surveyor’s report be obtained and approved by the charity’s trustees (or their delegated authorities) prior to exchange of contracts.

There is a cost implication to obtaining this report, as well as associated legal costs, so if the CGT likely to be incurred is minimal, decide first if the cost outweighs the benefit.

This is a brief overview of the CGT position.  It is recommended that you seek further advice about CGT matters, if required.

Inheritance Tax

Charities are exempt in most instances from the payment of IHT.  If the residue is to be shared between exempt and non-exempt beneficiaries, and there will be  charge to IHT, unless the Will specifically states otherwise, ensure that when the division of residue is calculated it is the non-exempt beneficiaries alone who bear the IHT cost.

Do however note that if IHT falls on pecuniary/specific gifts which exceed the nil rate band, and the residue is left to exempt and non-exempt beneficiaries, in that instance all the residuary beneficiaries will have to bear the tax.

This is a brief overview of the IHT position. It is recommended that you seek further advice about IHT matters, if required.

Estate accounts

Check accounts for errors and omissions which, when rectified, would result in a further payment to you.  Eg, check arithmetic, payment of pecuniary gifts, and that all the assets have been included at the right value.

Deeds of Variation

A Deed of Variation can be employed in certain circumstances to mitigate IHT by taking advantage of the charitable exemption.

The IHT rules state that if a Deed of Variation is made within two years after a death it is treated as if the new beneficiaries had been named in the Will. For example, if a testatrix left her estate to her sister, who in turn left her estate to charity, and the sister died shortly after the testatrix, then the executor of the sister’s will could be asked to enter into a Deed of Variation so that the original testatrix left her estate directly to the charity. The tax paid on the original estate could then be claimed back.

Costs incurred against a specific gift.

If an asset is given as a specific gift, and there are costs incurred in relation to that gift, it is the recipient of that gift who should bear those costs. This is referred to in Butterworths Wills, Probate & Administration Service Expenses E 2.127.   For example, if a property is given as a gift, then the estate agents fees, conveyancing costs etc should be deducted from the value of the property, before the proceeds are transferred.

If you note that any costs associated with a specific gift are being charged to the residue, you should point this out and ask for an amendment, but do be mindful of quantum when doing so. If it is only a small amount you will naturally need to consider whether it is worth your while given the time and cost involved.

ILM Partners

The Institute of Legacy Management has a number of corporate partners who offer preferential rates in a number of areas, including stockbrokers, surveyors and auctioneers.  If you become aware of instances when any of these can be used, suggestng an ILM partner may result in reduced estate costs, and help in maximising asset value.