How to leave part or all of an estate to charity using Estate Plans
Estate distributions are set by adding an Estate Plan from the Dashboard:
More detail on how to add an Estate Plan can be found here: How to add an Estate Plan - UK.
Here is a short video that will show you how to model an Estate Plan whereby part of the estate is being left to charity or see below for the rest of the guide; How to add an Estate Plan with a bequest to Charity - UK Video
In the Distributions section put Charity at the top of the list and then click on the Charity section to complete the details.
Select either Percentage or Fixed Amount in the Type dropdown and input the relevant figure in the Amount field.
For example, to model a will in which £1m is left to charity, with the balance to the spouse, select Fixed Amount and input £1,000,000 in the Amount field. Put the spouse at the bottom of the list so that they receive the remainder of the estate.
Once complete, click Done.
Are pensions included in Estate Plans?
No, Estate Plans are used to control the distribution of assets covered by the client's will. This does not include pensions as, generally, pensions are not included in a will. They are usually held in trust and pension providers and trustees have discretion over who receives the money, guided by the client's 'expression of wish'.
By default, the a pension will pass to the spouse/partner on first death in the software. If the client's expression of wish includes a distribution to charity, this can be modelled in the plan by completing the Beneficiaries screen on each pension this applies to.
Tip: for money purchase pensions, you should also complete the Beneficiaries screen for the linked drawdown pension.
For example, if the expression of wish splits the pension between the spouse and charity 50/50 input 50 next to the spouse's name and 50 next to Charity:
How to check the Estate Plan and Pension Beneficiary instructions are working as expected
Click Overview > Legacy to view the impact of the Estate Plan and Beneficiary instructions:
The Inheritance Tax Rate can be viewed in the Detailed Legacy view in the Estate Distribution and Inheritance Tax section
How does the software calculate whether the 36% IHT rate should apply?
The software will reduce the IHT rate from 40% to 36% if a client leaves 10% or more of their net estate to charity.
Total distribution to charity = distribution from the estate + distributions from pensions.
Net Estate = Taxable Distributions + Non Taxable Distributions + failed PETs/CLTs - Nil Rate Band (including carryover if applicable) - Business Relief.
In the above example, where £1m from the estate and 50% of the pension is left to charity, the total distribution to charity = £1,000,000 + £209,000 = £1,209,000
Net Estate = £3,175,697 + £0 + £0 - £325,000 - £0 = £2,850,697
10% x £2,850,697 = £285,070
The total distribution to charity is greater than 10% of the Net Estate, so the 36% rate applies.