Leaving percentage of estate to registered charities vs lump sums

Swiss_Danny67

Following Mum's death last year Dad is updating his will. He isnt going to change the fairly substantial gifts to charities they had both agreed on, but has been told by his investment advisor leaving a variable portion of the residual estate to charities can "lead to problems" for the executors compared to leaving say a fixed sum of an equivalent size.  Something to do with the charities challenging wills, valuations, executors actions, demanding a share in certain assets... all a bit vague. Anyone else come across this potential issue?

Flugelhorn

may be related to the enthusiasm of charities to maximise the bequest at all costs so if they get 20% they want to make sure the 100% is a high as possible hence possibly challenging valuations - though suspect it would have to be a very big estate for this to happen. 

the problem with the fixed amount though is that that would have to get paid anyway if there was enough money in the estate at the cost of what ultimately went to the residuary beneficiaries 

The_Unready

The solicitor is correct. I had exactly that problem when executing a will a few years ago. Charities can sometimes be very 'keen' to make sure their bequest is maximised, and that can often lead to delays and antagonism. 

I would certainly do as the solicitor suggests if I leave charity bequests in my will.

Swiss_Danny67

The_Unready said:

The solicitor is correct. I had exactly that problem when executing a will a few years ago. Charities can sometimes be very 'keen' to make sure their bequest is maximised, and that can often lead to delays and antagonism. 

I would certainly do as the solicitor suggests if I leave charity bequests in my will.

Interesting feedback, thank you. I've no issue my parents making these legacies, but am personally very wary of the big charity industry and certainly dont want to have to waste my time dealing with a greedy charity or three. For sure it means we will have to get a third party probate services involved too then, if only because of inherent conflict I will have as beneficiary and executor, even if managing it would be well within my abilities.

Spendless

If you leave the charity  a fixed amount of say £5,000 and then your estate gets reduced to very little (say you have to spend several years in a care home -my Nan spent 8 years in one) and after your funeral and any debts are paid and you're left with £6K and the wording of the will says '£5K to go to charity X and the rest divided between my children' then charity gets £5K and the children get £1k divided between them.

I would query this scenario back to the solicitor and see what they say.

p00hsticks

This topic comes up quite frequently on these boards - I think one of the latest threads is here
The disaster of a poorly written Will — MoneySavingExpert Forum

As I, and several others said there, my personal experience of having charities named as residual beneficiaries is that they were no problem at all, but others have an opposite view. 

Of course, the alternative of leaving a fixed sum to charity  is that the testators financial circumstances may change dramatically between the will being drawn up and the persons death (the most obvious reason being the need for a care home when the person is no longer mentally capable and so cannot draw up a new will).

That could have the unintended consequence of what was originally intended to be a relatively small bequest to a charity actually use up the entire estate, leaving any residual beneficiary with nothing. Specifying a percentage gets round that issue.

Malthusian

Spendless said:

If you leave the charity  a fixed amount of say £5,000 and then your estate gets reduced to very little (say you have to spend several years in a care home -my Nan spent 8 years in one) and after your funeral and any debts are paid and you're left with £6K and the wording of the will says '£5K to go to charity X and the rest divided between my children' then charity gets £5K and the children get £1k divided between them.

I would query this scenario back to the solicitor and see what they say.

If I was the child in that situation I would say "meh" rather than curse my parent for diddling me out of £2,500 (if there are two children). But it's a real concern, particularly if the fixed legacy to the charity is, say, £100,000 instead of £5,000.

A solicitor might advise making the charitable legacy conditional on the estate value being over a certain amount. This means that if your estate is over the limit, the charity still gets a fixed bequest and can't play silly badgers, but if it's depleted dramatically by care costs, the charitable bequest disappears and doesn't swallow up the estate.

Swiss_Danny67 said:

Something to do with the charities challenging wills, valuations, executors actions, demanding a share in certain assets... all a bit vague.

The trick is to threaten to take the executors to court for undervaluing the house, or any similar assets (where valuations can always be disputed).

They know

a) that it is cheaper for the executors to settle with the charity than go to court, even if they would win

b) the executors are usually laypeople who are not mentally prepared for a long and exhausting court case, and are likely to be friends/family of the beneficiaries who also don't want to wait years for their money, whereas the charity isn't emotionally involved because it's other people's money

c) the charity can afford more expensive lawyers than the executors, putting them at an advantage in any court case in the unlikely event the executors refuse to pay them off.

A fixed £ legacy avoids this issue because even if the house was undervalued, the recipient of the fixed legacy has lost nothing and has no grounds to sue. 

Swiss_Danny67

Malthusian said:

If I was the child in that situation I would say "meh" rather than curse my parent for diddling me out of £2,500 (if there are two children). But it's a real concern, particularly if the fixed legacy to the charity is, say, £100,000 instead of £5,000.

A solicitor might advise making the charitable legacy conditional on the estate value being over a certain amount. This means that if your estate is over the limit, the charity still gets a fixed bequest and can't play silly badgers, but if it's depleted dramatically by care costs, the charitable bequest disappears and doesn't swallow up the estate.
The trick is to threaten to take the executors to court for undervaluing the house, or any similar assets (where valuations can always be disputed).

They know

a) that it is cheaper for the executors to settle with the charity than go to court, even if they would win

Yes, we are in six figure sums here to two separate nationally recognisable medical charities.

The tactics you describe are classic deep pocket litiguousness, makes sense. I get that technically charities are equally entitled beneficiaries and often get the short end of the family/executor interpretations, and have a fiduciary duty to get the most possible from the legacy.

I also gather from further reading that some charities have a really bad reputation for this sort thing, others less so. I appreciate the comments you and others make about the risks of fixed amounts and changing circumstances. Very helpful.

Brie

I would have thought the way to get round these issues would be to say Charity A&B each get 10% to a maximum of £20k or whatever.  That way they get their portion as intended but can't get overly pushy about maximising it.

Notepad_Phil

Brie said:

I would have thought the way to get round these issues would be to say Charity A&B each get 10% to a maximum of £20k or whatever.  That way they get their portion as intended but can't get overly pushy about maximising it.

I was thinking along the same lines and also in order to stop the charities from taking all the money from a depleted estate - perhaps a specific £ amount if the estate is over a certain value or a percentage if less.

Mojisola

I would be tempted to leave everything to the children but enclose a letter of wishes with the will, asking the children to donate to the charities I would like to benefit - as well as discussing this with them now - with the understanding that if there isn't much left in the estate or they have serious need of the inheritance, they can ignore my wishes as the letter wouldn't be legally binding.

If any of the children would be in receipt of means tested benefits, they wouldn't be able to donate without it affecting their benefits.