The desire to make a positive impact on the world around you is always a noble aspiration to have. While this may be reflected in people’s careers, social interactions or values, a common way people choose to make a difference is through charity donations. As of the 2023-24 financial year, over £28 billion was included in donations to charity according to the Charity Commission’s Annual Report and Accounts 2023-24, and approximately £4.1 billion of this was as a part of a bequest, according to Legacy Futures. A legacy donation is a bequest directed to a charity and is one of the best ways that you can create a positive and lasting legacy, but why should you consider giving to charity in your Will? In this article, we’ll discuss just that.
Types of Bequests
How can you gift to charities in your Will? There are two main types of gift you can leave to charities, both of which have very different meanings and implications. The first is pecuniary, and a pecuniary legacy is a bequest that has a fixed amount. For example, you could leave exactly £1,000 of your Estate to a specific charity. While this sounds rather straightforward, it becomes more complex when factoring in inflation, meaning the value of the gift will lose value over time. If you were to have specified £1,000 in 2000, for example, that will have lost 55% of its purchasing power as of 2024. There are some ways to circumvent this, including index-linking and leaving a percentage of your Estate instead. Leaving a percentage of your Estate works as a way to preserve relative value over time. Choosing to leave 10% of your Estate to charity in 2000 will mean that 10% of your Estate will still be donated to charity when it comes to administering your Estate. However, it’s far more volatile to changes in your Estate’s total value. Care fees or unexpected liabilities could result in a much smaller donation than intended, while a growth in your Estate could do the opposite. Conversely, index-linking is a solution that your Solicitor can provide that will protect a pecuniary donation from inflation erosion while maintaining a more specific value. This is a method which keeps the value of a gift rather the exact figure, so in our prior example, it would mean leaving a gift that would reach the value of £1,864.91 by December 2024 rather than £1000.
The second method is leaving a residuary donation, which is where the remainder of your Estate (or a portion/percentage of the remainder) is left to charity. This requires all other bequests, debts and expenses to be paid, and the value of the Estate left is taken into account. Depending on your priorities, this might be the perfect solution for you. If you don’t want to allow charitable donations to affect how your family and friends are provided for, this would make sure they are the priority. The downside, however, is that if your Estate has no remaining value after all debts, expenses, and specific gifts have been settled, the charity may receive little to nothing. So, if providing for your loved ones is your priority, a residuary donation is most likely to align with your wishes, but if it’s important to you that a charity will benefit from your Estate, pecuniary donations are a more secure way of doing so.
Tax Benefits of Donating to Charity
Not only can you provide for an important cause through a charitable bequest, but you can also see major personal benefits. Inheritance Tax (IHT) is always a topic of discussion in writing a Will that is no different in donating to charity. Importantly, gifts to registered charities are typically exempt from IHT. If, for example, your Estate exceeds the threshold and all applicable exemptions by £10,000, a charitable donation of £10,000 would mean that your donation, as well as the remaining Estate, would not be taxable. This is a way that you can fully provide for individuals or causes that are important to you without incurring IHT. Another option would be to donate 10% of your Estate to charity. If you leave 10% or more of your net Estate to charity, the IHT rate on the remaining taxable Estate can be reduced from 40% to 36%. While this is considerable incentive to donate to charity, it naturally has benefits to the rest of your Estate, and should always be considered, particularly if you already have plans to donate at least part of you Estate to charity.
Choosing The Best Charities For You
Deciding which charity to support can be a deeply personal choice, so it can be difficult to determine which to leave your last donation to. If you are finding it difficult to decide, remember that you wouldn’t make a decision over any other Beneficiaries without good reason, even if that reason is as simple as them being family. The same should be the case with a charity, and so in-depth research can help ensure that the charity of your choice aligns with your values. Consider an issue near and dear to your heart, whether that be medical research, animal welfare, poverty relief or any other cause. The Charity Commission can be an invaluable tool in not only finding registered charities in these areas, but ensuring that they are reputable and financially transparent. It also should be noted that you don’t have to restrict yourself to one charity; there are hundreds of charities, big and small, making an incredible difference in people’s lives each and every day.
If you’d like to implement a donation strategy in your Will, we offer free 30-minute consultations where we can see how best to make sure your chosen charity is supported, while effectively providing for your loved ones. If you have any questions, please don’t hesitate to contact us.
