Leaving a legacy is about more than just passing on wealth; it’s a chance to make a meaningful impact on causes close to your heart. Including a charitable gift in your Will ensures that the organisations you care about will benefit, allowing your values to live on long after you're gone. In the UK, these charitable contributions in Wills are not only impactful for the charities involved but can also reduce inheritance tax, making it a wise option for those looking to protect their estate’s value for loved ones.
Why Consider Leaving Assets to Charity?
Leaving assets to charity can be an important part of legacy planning, offering both emotional satisfaction and financial benefits. Whether it’s supporting medical research, environmental conservation, animal welfare, or another cause close to your heart, a charitable gift allows you to continue making a difference even after you’re gone. Here’s a look at several key benefits of charitable giving in your Will:
Impact on Inheritance Tax (IHT) - When you leave 10% or more of your estate to charity, your estate could qualify for a reduced IHT rate of 36%, rather than the standard 40%. This tax incentive not only helps support worthy causes but also reduces the financial impact on your estate’s other beneficiaries. For large estates, this reduction in IHT can amount to a substantial tax saving, benefiting both your loved ones and the charities you care about.
Exempt Gifts to Registered Charities - Charities registered in the UK are exempt from IHT, which means any gift left to a registered charity will pass free of tax. This provision enables you to leave assets to a charity without diminishing the inheritance for other beneficiaries.
Types of Charitable Gifts in Wills
There are several ways to include charitable gifts in your Will, each tailored to different financial situations and the level of impact you want to make:
Pecuniary Legacy - A pecuniary legacy is a set sum of money you leave to a charity, such as £10,000 to a cancer research organisation. While simple, it’s essential to review your Will regularly, as the value of this gift may be affected by inflation over time.
Specific Legacy - You might also choose to leave specific items or assets, such as property, stocks, or valuable belongings like artwork, to a charity. Many charities will sell these assets to raise funds for their cause.
Residuary Legacy - A residuary legacy involves leaving a percentage of your estate’s remaining value after debts and other bequests are settled. This is often the most flexible option, as the charity’s portion adjusts in line with your estate’s value. For instance, you might leave 10% of your residuary estate to a chosen charity.
Additional Benefits and Considerations
While many people see charitable giving as a way to make a difference, there are additional benefits and flexible options worth exploring:
Executor’s Choice for Charity Beneficiaries - If you know you want to benefit a charity but haven’t decided which one, you can empower your executors to make the decision on your behalf. You might leave guidance, such as asking them to support animal welfare or medical research, and your executors will select charities that fit your wishes.
Including Charities in Discretionary Trusts - For added flexibility, you can include charities as potential beneficiaries within a discretionary trust. Trustees, those responsible for managing the trust assets, can then have the discretion to allocate assets to a charity alongside other beneficiaries. This approach is especially useful if you wish to leave open the option of charitable support without making it obligatory.
Legacies Paid First - Specific sums designated for charities in your Will, known as legacies, are paid out before the rest of your estate’s distribution. However, if your estate decreases significantly due to unforeseen costs, such as care expenses, these legacies might need to be proportionately reduced. For this reason, some people opt to leave a percentage of their estate’s residual value to beneficiaries, including charities, which provides more adaptability.
Gifts of 10% or More for IHT Reduction - As mentioned, leaving 10% or more of your estate to charity not only benefits a good cause but also offers a tax advantage with a reduced IHT rate of 36%. This can be an effective strategy for anyone with a taxable estate, as the reduced tax can create a larger inheritance for your family and still provide for charity.
Practical Tips for Charitable Giving in Your Will
When planning to include charitable gifts in your Will, consider these practical tips to ensure your intentions are clear and your legacy maximised:
List Specific Charities - Be as clear as possible about the charities you wish to support. List them by name, location, and registration number if possible, to avoid ambiguity.
Consider the Flexibility of Residuary Gifts - A residuary gift often provides flexibility, adjusting with the value of your estate, so you know your chosen charities will receive a proportionate share.
Update Regularly - Regularly review your Will to reflect changes in your estate’s value and to account for inflation. Doing so ensures that your gifts retain their intended impact.
How Toucan Law Can Help
At Toucan Law, we understand the importance of crafting a Will that reflects your values and intentions. We’re here to guide you through the options for charitable giving, making sure that your chosen organisations and causes benefit in the most impactful way. Our team will work with you to maximise any tax advantages, helping to ensure that both your loved ones and your selected charities are supported.
If you’re considering including a charity in your Will, we’re here to help you make an informed decision. Get in touch for a free consultation or visit our website to explore more about charitable giving and estate planning, including: https://www.toucanlaw.co.uk/post/5-useful-things-you-might-not-know-about-gifting-to-charities-in-your-will
By carefully planning your charitable legacy, you can make a difference that lasts, supporting causes that matter while benefiting your estate and those you care about.
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