Advice on Bequeathing Assets to Charities

[TheSaltedCaramelPath]

Seeking advice for a friend - a query relating to bequeathing assets to charities.

Friend wishes to leave part of their estate in their will, (a substantial amount) directly to a charity, which in this case forms part of a university.

Can the invested asset (assume funds and shares) be physically donated in the form as it is held and passed directly to the charity - for the charity to administer the funds and to liquidate it themselves?

If giving to a charity can this be done outside of the estate for Inheritance Tax (and Capital Gains Tax?) purposes? (So the charity also enjoys capital gains).

Or is it (as I suspect) that the asset has to be liquidated by the will administrators, which then forms part of the estate for tax purposes, before the assets are later passed to the charity - after any tax has been paid?

If transferring directly to a charity, who would pay Capital Gains if it were due?

Friend wishes to make a significant charitable donation as a way of reducing some of their tax liabilities.

(There will still be tax to pay on the balance of the estate).

Not a lawyer but I do work in a charity and deal with legacy bequests on occasion. None of this is financial advice, just my lay-person’s understanding.

Charitable donations are generally tax free so I don’t think the charity would need to pay any tax on a donation.

You can make bequests as money from liquidated assets or can gift the assets themselves so think they would be fine for the shares to go directly to the charity.

If you leave 10% or more of your estate to charity it can decrease the overall tax liability of your estate from 40% to something like 36%.

Above all I would suggest your friend speaks to the university as they will be able to advise on things like wording to make sure the gift gets used in a way your friend wants, and, more importantly, they should speak to a solicitor - it sounds like it could be a slightly complicated estate and a couple of thousand on a good solicitor is worth it to know your friends’ legacy is as they intend it.

Can the invested asset (assume funds and shares) be physically donated in the form as it is held and passed directly to the charity - for the charity to administer the funds and to liquidate it themselves?

That will depend entirely on the organisation in which the funds/shares are invested. Most investment platforms won't allow such an "in specie" transfer of assets (funds and shares) so they'd have to be liquidated and money transferred to the charity, who'd then be free to re-invest in the same funds/shares if the will specified. Some companies/platforms "may" allow "in specie" transfers.

They'd have to check with the firms concerned.

No, such assets wouldn't be outside the inheritance tax in whatever form they were transferred. "Assets" including shares form part of the estate.

You'd need to look at the specific rules for legacies to charities and the IHT relief/exemptions relevant, but those rules apply to all assets so would apply the same whether shares were gifted or whether shares were liquidated and the cash was gifted.

They definitely need to take professional advice from their solicitor when drafting the will, and also engage with the charity beneficiary's treasurer or similar to ask them how they'd prefer the legacy to be delivered, once they'd established whether the organisations into which the investments were made would be able to transfer "in specie" or not. It may well be that the charity wouldn't want to receive the legacy in such a way. So 3 discussions/consultations to be had.

What about any people in the will? What about the executor? Charities are well known to chase their legacies and others often miss out as a result, particularly when liquid assets have been spent on care fees! There’s not always much left. Therefore I’d always leave a % and then the executor liquidates everything and a % is handed over. It’s so much easier!