Giving to Charity in your Will
It seems that people in the UK are a charitable bunch. In fact, last year, just under £3 billion was donated to charity in Wills, which is expected to rise to £3.4 billion by 2022. This figure means that 3.5% of all of the money left in estates goes to charity.
What sort of charities benefit?
There is certainly no shortage of choice when it comes to picking a charity, but there are four industries that receive more than the rest. The lion’s share (38%) goes to healthcare causes, with Cancer Research UK coming out on top. After that, animal charities get the next biggest portion with 15%, followed closely by disability charities and conservation each receiving 8% of legacies.
When writing a Will, the main thing you need to decide is how you will divide up your property and money. The people or organisations you leave money to are called beneficiaries.
In order to make a Will you need to have a good idea of how much your estate is worth. Some of your assets will be easier to put a value on, such as savings accounts and valuable items. However, other things will require an educated guess or formal valuation: for example, your property, investments or business.
The tax benefits of giving to charity
If you plan to leave everything to your spouse that would be tax-free, but leaving money to anyone else means your estate may be liable for inheritance tax. Often described as the ‘most hated tax’, inheritance tax is charged at 40% of estates with a value of over £325,000.
However, leaving money to charity can substantially cut or remove the inheritance tax bill.
1. Eliminate your inheritance tax bill
If your total estate is worth over £325,000, you can donate enough to bring it under this amount, meaning the amount left can be split between family and friends without being subject to tax.
2. Reduce your inheritance tax bill
Giving at least 10% of your estate to charity means that inheritance tax is reduced down from 40% to 36%, even if the value of the remaining estate remains above £325,000.
Three types of legacy
There are three different ways to gift your money to charity:
This is the most common, and the simplest form of legacy. This is when you leave a set amount of cash to a particular beneficiary. For example, leaving £7,000 to The Donkey Sanctuary.
This is when you leave a specific item, perhaps some stocks or shares, a valuable item or a property to a beneficiary. For example, leaving a holiday cottage to Marie Curie.
A residuary beneficiary is the person or organisation who receives the remaining balance of the estate when everything else has been paid (debts, gifts and taxes). For example, Oxfam could be a residuary beneficiary if they are left the balance of the estate after all other costs and gifts have been paid out.
Problems that can occur
There are several different issues that can happen when an executor is administering your estate.
1. A gift no longer exists. You could have left your house to Oxfam but you sold it when you went into a nursing home. This means the gift would fail.
2. Legacies cannot be fulfilled. Your financial situation could change between the time of writing your will and your death, especially considering nursing home funding costs more than £50,000 a year, meaning that the executor cannot fulfil all cash gifts.
3. The charity does not do with your money what you expected it to. In many cases a legacy left to a charity is not used to support the main activity of the charity for example funding research but instead is used to pay running costs or salaries.
Manzurul Islam, Head of Wills & Probate at Mullis & Peake LLP, said:
“In these cases, the best protection is to instruct us to draft the Will for you. We can ensure that a gift is structured so that a change in circumstances can be catered for without the need to amend your will later on. For those who are contemplating large gifts or with specific projects in mind we recommend a discretionary trust solution which allows your executors to control how much they give to a charity and when. This means the charities must make proposals for how the money will be spent (and how you will be remembered with it) before any money is released to them. For more information please give us a ring and ask to speak to our wills department.”