Do i pay the charities before taking expenses out of estate

Cazzaloulou68

Morning, I’m a bit confused. Once i have probate (applied online yesterday at last!) i know that certain costs can be deducted from the estate like inheritance tax, probate fees, estate agent fees etc. do i take these out of the estate before calculating the 10pc to the charities? Or do i take their money from the net value after debts. Ie assets 500,000k gross value .debts 2500k net value 497,500k. Or have i got it completely wrong. Help please as when the calculation for the IHT the 10pc figure was taken from the net amount then less the 325,000 allowance to arrive at the IHT tax amount

kuratowski

If the charity has been left 10% of the estate residue, that means everything else needs to be paid first.

Deduct any debts including funeral costs, deduct inheritance tax, deduct any specific bequests, deduct administration expenses including probate and estate agent fees, and what remains is the estate residue to be shared amongst the residuary beneficiaries.

The charity (and any other residuary beneficiaries) will be entitled to a copy of the estate accounts, showing how you worked out their share.  I found it helpful to refer to this article:
https://www.co-oplegalservices.co.uk/media-centre/articles-sept-dec-2018/what-are-estate-accounts/

Cazzaloulou68

@kuratowski thank you for that. Makes more sense doing it that way…when i list all the items for the estate accounts as well.

Keep_pedalling

kuratowski said:

If the charity has been left 10% of the estate residue, that means everything else needs to be paid first.

Deduct any debts including funeral costs, deduct inheritance tax, deduct any specific bequests, deduct administration expenses including probate and estate agent fees, and what remains is the estate residue to be shared amongst the residuary beneficiaries.

The charity (and any other residuary beneficiaries) will be entitled to a copy of the estate accounts, showing how you worked out their share.  I found it helpful to refer to this article:
https://www.co-oplegalservices.co.uk/media-centre/articles-sept-dec-2018/what-are-estate-accounts/

If the charitable bequest is there (at least in part) to lower the IHT rate then it has to be 10% of the net estate so the will is unlikely to state 10% of the residual estate, and it should come out of the net estate, so the only deduction are funeral costs and and debts to creditors. 

Cazzaloulou68

Ok to back to the way i thought it would need to be worked out
…so nett amount…then 10pc charity…
then pay rest of IHT…
then when working out the rest….
30k capital gains…-3k allowance - estate agents/sol fees etc….pay 28% of what’s left
balance….- rest of expenses (probate fees/energy/water/etc)
balance split between beneficiaries…
list all that in a nice clear way and send with the monies to the beneficiaries 
am i correct?

Brie

why would a charity be treated any differently than any other beneficiary?  I would have thought that all expenses including IHT would be paid first and then the split.  

Marcon

Brie said:

why would a charity be treated any differently than any other beneficiary?  I would have thought that all expenses including IHT would be paid first and then the split.  

Bequests to charities can change the rate of IHT payable, so the amount paid to charity is important for the overall value of the estate/the amount of IHT payable.

Cazzaloulou68

Thanks for your input guys @Marcon @Keep_pedalling -much appreciated. Also when I’m updating the charities once probate gone thru and house sold etc… do i need to send them the whole estate accounts? Or as they are getting a 5% share of the net estate before anything else, is it ok just to send a copy of the will and a copy of the probate? 

Keep_pedalling

The charities are not residual beneficiaries so are not entitled to a set of accounts although you can if you want to. No need to provide a copy of the will or probate as that becomes a public document and they can obtain copies from the probate service if they want to see them. 

Cazzaloulou68

@Keep_pedalling i wonder if i could pick your brains. I have now completed distribution, however one of the charities has written to req a copy of estate accounts (i had already sent copy of will and probate). I had nothing to hide so have sent them a copy. They have now written to tell me i have overpaid them! And would i like a refund (not talking 000’s just a few hundred. I paid them their 5pc as above.  As in i calculated their 5pc from the net probate value. Then paid IHT (36%), then all the estate expenses (estate agt/solicitor/final bills etc. what was left was split between me and 1 other beneficiary. They say their gift should have been calculated and paid after everything else. Now I’m doubting myself that I've worked it all out wrong! Because the IHT was worked out on estate after the charities amount was taken out.
for info the other charity have just written with condolences and a thank you. I’m not sure how to reply.

Keep_pedalling

The amount is calculated on the net value of the estate at the time of death, so basically gross value less funeral cost less any debts owed by the deceased. Nothing else should be deducted otherwise you could end up losing your IHT discount.