He consistently tops the lists as one of the most wealthy people in the world; now, Bill Gates intends to change all of that.
Background to the wealth of Bill Gates
Bill Gates is one of the richest people in the world, currently sitting at number 5 with a net worth of approximately $114.6 billion (or £95.2 billion). He has been a billionaire since 1987; however, in July 2022, Bill Gates made a statement that he plans to give away "virtually all" of his wealth.
In the year 2000, Bill and his then wife founded the Bill & Melinda Gates Foundation, a charity focused on global health and poverty initiatives. Bill Gates plans for his foundation to be the main recipient of his wealth, having transferred $20 billion in July 2022 and with plans to transfer further billions in the future.
The question remains as to what would happen should Bill Gates pass away before he completes his plan to give away his wealth in life. Whilst Bill Gates is American and the content of his US will is of course unknown, this blog will look at the considerations Bill Gates would have if he was Scottish.
Wills
As a starter, Bill Gates should have a will. If you don't put a will in place, you die 'intestate' in the eyes of the law. In an intestate scenario, the law dictates what will happen to your assets on your death. A will also reduces unnecessary administrative and legal costs. For Bill Gates, a will is necessary because the laws of intestacy would not provide for his wealth to go to his Foundation.
What should his will cover?
Residue:
What is the residue? The residue is whatever is remaining of one's estate after paying off all your liabilities and distributing any legacies included in your will, such as any cash or physical items. For Bill Gates, the residue would likely pass to his charity. When giving to charity, one's will should provide that, if the charity has changed name, amalgamated, or transferred to another body, your executors can use their discretion in giving the assets over to a similar charity. This provision allows the charity to go through administrative changes / be wound up without the risk that one's charitable giving may fail.
By giving to charity in his will, Bill Gates could reduce any UK inheritance tax liability. First, the value of assets passing to a UK-registered charity is exempt from UK inheritance tax. Further, if more than 10% of (broadly) the residue of his estate passes to charity, he would likely qualify for, and be able to claim, the reduced inheritance tax rate.
In short, when one gives more than 10% of the net estate to charity, any inheritance tax charged on other parts of the estate that are subject to UK inheritance tax are charged at a lesser rate of 36% v the usual 40% (subject to meeting certain other criteria). Bill Gates' executors would be wise to claim the 36% rate to reduce any UK inheritance tax due on any legacies given to his children or others.
What about his children?
As a legacy:
Bill Gates wishes to give away "virtually all" of his wealth; however, Bill Gates has three children and may wish to provide for them in some way – the extent of which will depend on the extent of his lifetime giving to them. If so, it would be important to include a legacy to this effect. He could name different properties, sentimental objects, or amounts of cash specifically to be given to each child, or he could name a specific amount of money to be split between his children.
As a legal rights claimant:
While Bill Gates may wish to give a small portion of his wealth to his children, in Scotland, he would have to be aware of legal rights. Legal rights are a form of forced heirship which prevents Scottish domiciled individuals from completely disinheriting any spouse and children.
Without a spouse currently, Bill Gates' children's legal rights would amount to one half of his net moveable estate split equally between them if he were Scottish domiciled at the time of his death. This would include the value of items like cash, furniture, and stocks but would not include land or buildings. With much of his wealth thought to be in Microsoft shares and other investments, any legal rights claim could reduce the amount intended for charity.
However, claiming legal rights is optional. The children could choose to accept their entitlement under the will (if any) or discharge their legal rights. A legal rights beneficiary cannot claim their legal rights and take their entitlement under the will. If Bill Gates was Scottish, it would be vital for him to consider legal rights and discuss his wishes with his children in life.
Is there anything else to be aware of?
Lifetime Gifting:
As a final note, Bill Gates plans to continue giving his wealth away which is a great inheritance tax planning method, as he does not appear to need it to maintain his lifestyle. Lifetime gifting (to charities and / or to individuals) can be useful to mitigate inheritance tax but advice should be sought early to ensure you are fully aware of the possible consequences (both tax and legal) of gifting to your loved ones before death.
Contributor
Trainee solicitor
