How can you gift to charity in your Will?
There are various ways you can leave money or assets to charity when you die. The main way is by making a valid Will during your lifetime. The Will typically would then contain one or more of the following most common clauses:
A specific gift of cash e.g. £1000 to a specifically named charity;
A specific gift of property e.g. my book collection to a specifically named charity; and
A share of your estate e.g. 50% of my estate (whatever that may be) to a specifically named charity
Why leave a gift to charity in your Will?
The main reasons we hear that people wish to leave money to charity in their Wills are:
- To support a cause you have held dear to yourself in your lifetime;
- Charitable giving through Wills often provides a substantial amount of a charities’ revenue stream. It is reported that a third of Cancer Research UK’s work is funded through gifts and Wills, nearly 2 out of every 3 guide dogs are funded by legacies and 50% of the British Heart Foundation’s voluntary income is through gifts and Wills; and
- To obtain inheritance tax (and other tax) advantages to your estate. Gifts to charity are free from inheritance tax that would otherwise be payable upon your death. Inheritance is otherwise paid at a rate of 40% on your chargeable estate. For deaths after 6 April 2012, a lower rate of inheritance tax at 36% may be applied to an estate, if you leave 10% or more of your net estate to charity.
Factors to take into consideration
The following are some of the basic considerations to think about before you decide whether to leave money or assets to charity in your Will:
- The larger the amount of the charitable gift, the greater the overall inheritance tax saving will be.
- The non-charity beneficiaries (e.g. your family and friends) may benefit from the lower rate of inheritance tax at 36%, but will always receive less than if there are no charitable legacies at all. There has to therefore be a charitable desire, rather than just a wish to save tax!
- The size of the charitable legacy required to qualify for the lower rate of inheritance tax will change depending on the size of your estate and the availability of your nil rate band and other tax reliefs.
- The calculations to ensure that 10% of your net estate is left to charity, to benefit from the lower 36% rate of inheritance tax, can be complex. We always recommend you take the advice of a qualified and experienced solicitor.
Options if you wish to leave 10% of your estate to charity to qualify for the lower rate of inheritance tax
- Firstly, take advice to ensure your estate definitely will be subject to inheritance tax! There are many new alternative inheritance tax reliefs, which if applicable, could mean there is no inheritance tax to pay anyway!
- Leave a carefully drafted clause in your Will, specifying that you wish to leave 10% of your estate to charity as per the definitions in the relevant legislation.
- Include a discretionary trust within your Will, with an accompanying letter of wishes expressing the wish for your trustees to exercise their discretion to leave that 10% of your estate to charity. This provides greater flexibility as the letter of wishes can be changed at any time to vary the charities you wish to benefit. The disadvantage, however, is that the trustees may want to appoint assets out to family members or friends rather than charities (you cannot compel them to) and there will be the ongoing cost of running the trust.
- Leave a cash legacy within your Will which is likely (but not guaranteed) to meet the 10% test. The advantage is that the charity will definitely receive the gift of that specific amount. The disadvantage is that it may not meet the 10% test (if your estate increased in size), or it may be more than would otherwise have been needed to meet the 10% test (if your estate decreased in size). There may be some complex calculations as to where the burden of inheritance tax falls.
- Prepare a Will leaving everything to family or friends who may chose to vary your estate within two years of your death (via a deed of variation) if they want to claim the reduced rate at that time. The advantage is that you are leaving it to your beneficiaries to decide whether a charitable legacy to gain inheritance tax benefits is most appropriate at the time of your death. The disadvantage is that it is not always guaranteed that a deed of variation can be done, depending on many factors at the time of your death, such as the age and capacity of the beneficiaries who would be varying.
If you would like to discuss benefiting a charity in your Will further, please do not hesitate to contact a member of our Private Client Team on 0113 336 3427.
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