Every year in the UK, people leave approximately £2.8 billion in charitable donations within their Wills. Donations such as these are the largest single source of voluntary income to the charity sector and are therefore incredibly important, many charities would not survive without people leaving a gift in their Will. Despite this, only 6% of people actually leave a charity gift in their Will.
There are two ways to leave money to a charity in a Will:
- Specify a named charity or charities that will benefit
- Let the trustees of the Will decide.
If specific charities are chosen then it is advisable to include their registered charity numbers to avoid confusion as names can often change. If the client decides to let the trustees choose the charities, it is essential to leave a clear record of the clients wishes to help them make a decision.
A charitable gift can be:
- A cash sum or a pecuniary legacy, is the most common method
- A particular property or asset
- A residual legacy – this is a share, or the whole, of the residuary estate (what’s left after other specified gifts, costs, and tax).
Can family members contest donations in a Will?
The Inheritance Act establishes that a Will must provide reasonably for any financial dependents a client may have. If the Will doesn’t do this, there is the possibility that a family member may be able to contest a charitable gift to get the financial provision they’re entitled to. Family members may also claim the client was under undue influence or were not of sound mind when making the gift (an LPA may also be something to consider in some circumstances when dealing with charitable gifts, especially if they are of a large size). If successful, family can contest the gift or have the entire Will declared invalid.
The impact on Inheritance tax
As well as being tax-free, charitable gifts can also reduce the amount of inheritance tax that the rest of the estate will pay.
If 10% of a taxable estate is left to charity, the inheritance tax rate for the rest of the estate will decrease from 40% to 36%. Essentially, this means that:
Every £100 that is given to charity costs the estate £24. So if a client is planning in leaving 5% of their state to charity, actually by increasing it to 10% means, that not only does the charity receive more, but beneficiaries have less tax to pay than that for a 5% donation.
Update the Will
If a client has a Will and later decides they wish to leave a charitable gift, then it’s simply a case of updating their Will and adding in the relevant details. Updating a Will essentially creates a new Will in replacement of the previous version.
Another option is to create a codicil. This is a document used to make changes to an existing Will. It’s used as a way to make simple amendments like adding a charity, changing a gift amount or adding an executor. This is all quite straightforward but problems can possibly occur if the client wishes to create a new Will in the future.
When a Will is updated with a new Will the codicil does not automatically get cancelled, so the new Will could create inconsistencies and potential legal problems. It’s very important the new Will states that all previous Wills and codicils are revoked.
Remember a Charity
BTWC supports Remember a Charity, who collaborate with more than 200 charities in the UK to encourage people to leave a gift in their Will.
40 per cent of people over 40 say they would be happy to leave money to charity in their will, up from 35 per cent a decade ago, according to research by the Remember A Charity campaign in 2018. Legacy gifts account for more than 50 per cent of the British Heart Foundation’s income, 10 per cent of the single parent family charity Gingerbread’s income, 11 per cent of mental health charity Mind’s income and two out of three guide dogs are sponsored through legacy gifts.
So a client can choose to leave a cash sum, or part of their estate to a charity of their choice, they simply need to make their wishes know in their Will, with precise details. The impact of leaving a gift can be huge and far reaching – so why not have the discussion with your clients when you next see them. Based on the fact that in the UK we donate more than £10 billion to charity each year, then all you need to do is make your clients ware that this is an option, and it’s easy to do!