Leaving part of your estate to charity is not only a noble act, but brings tax advantages that can help you to leave more money and property to your loved ones. This is particularly relevant for business owners, homeowners and high net-worth individuals looking to make a lasting impact and provide their family with a valuable residuary estate.

In the following guide, the expert wills and probate solicitors at JMW will explain the benefits of leaving part of your estate to charity, how to do so, and what you'll need to consider in order to ensure you make the most of the potential tax savings you could receive.

The Importance of Wills and Estate Planning

Putting in place a last will and testament is a key component of effective estate planning. Below are some reasons why having a will is particularly important if you are considering leaving part of your estate to charity:

Control Over Asset Distribution

A will provides you with the opportunity to specify who should receive what from your estate. Without a will, your assets will be distributed according to the rules of intestacy, which might not align with your personal wishes or financial goals. Under intestacy laws, the charities you care about will receive nothing unless the relatives who receive the inheritance accept your wishes. However, they have no legal obligation to do so. They may keep assets that you would prefer to go elsewhere unless you create a will with explicit instructions to this effect.

Tax Planning

A well-crafted will can serve as a powerful tool for tax planning. By leaving part of your estate to charity, you can take advantage of tax benefits that reduce the Inheritance Tax (IHT) burden on your estate and your loved ones. With a will that is carefully thought out, you can make tax-efficient choices that benefit you and your beneficiaries.

Clarity and Certainty

With a will, you can eliminate any ambiguity about how you want your estate to be distributed once you are gone. This is particularly important if you have multiple beneficiaries, including charities, as it ensures that your assets are distributed exactly as you intended. It can also prevent potential disputes among family members or between family members and charities, which could otherwise lead to costly and emotionally draining legal battles.

Flexibility

Your circumstances and views may change over time, and a will can be updated to reflect these changes. Whether it's adding a charity, changing the amount you wish to leave or making any other changes, a will offers the flexibility to adapt to your evolving needs and wishes. The expectation that you may change your mind is never a good reason not to have a will.

Peace of Mind

Perhaps one of the most underrated benefits of having a will is the peace of mind it brings. Knowing that your affairs are in order and that the causes you care about will be supported can offer a great sense of relief. It's a way to leave a legacy that aligns with your values.

Charitable Trusts

Charitable trusts are a popular and flexible way to leave assets to charity. Unlike wills, a charitable trust offers control over how your assets are used during your lifetime as well as after your death. The trust is managed by trustees, who are responsible for ensuring that the assets are used in accordance with your wishes and the trust's objectives. In some cases, you can act as a trustee yourself before you pass away.

Charitable trusts offer various tax advantages, including potential reductions in Income Tax, Capital Gains Tax and IHT, if they are managed correctly.

When setting up a trust, you can specify how the assets are to be used, set conditions or change the charitable beneficiaries if your priorities change. This is particularly useful for those who wish to support specific projects or causes.

However, it's important to note that while charitable trusts offer many benefits, they also come with responsibilities. Trustees must manage the trust in accordance with both the law and the trust's objectives, which can be time-consuming. There are also regulatory requirements, including the need to file annual accounts. Proper planning and legal guidance is essential when setting up a trust to make sure these responsibilities are managed in compliance with the law, and that you structure the trust in a way that best meets your needs.

Benefits of Leaving an Estate to Charity

There are several advantages for people who decide to leave money to charity when they die. One of the most immediate benefits of leaving part of your estate to charity is the potential tax relief it can offer. In the UK, the standard IHT rate is 40% of the value of an estate above the £325,000 threshold. However, if you leave at least 10% of your 'net estate' to a charity, you can reduce the IHT rate on the rest of your estate to 36%.

People with valuable estates have the power to make a significant difference through charitable giving. Your contribution can have a lasting impact, supporting causes that are close to your heart for years to come. There is a unique sense of fulfilment that comes from knowing you are leaving a legacy that will benefit others, especially people in need.

Many charities offer ways to honour significant benefactors, whether through naming opportunities, commemorative plaques, or mentions in publications. While not everyone seeks such recognition, it can be a meaningful way to memorialise your generosity.

The Process of Leaving Part of Your Estate to Charity

Any estate-planning process can appear complex and daunting at first. Making sure you create your will or trust properly will not only help you to get the most out of your estate but also avoid mistakes that could be costly or time-consuming. Here is a general guide to what leaving money and property to charity typically entails:

1. Consult a solicitor: the first step in leaving part of your estate to charity is to consult a solicitor experienced in estate planning - such as those at JMW. We can guide you through the entire process and help you make the most tax-efficient choices.
2. Choose the type of gift: you can leave different types of gifts to a charity: Pecuniary (a specific sum of money), Specific (particular items or property) or Residuary (a percentage of the estate after other gifts and debts have been paid).
3. Draft or amend the will: once you've decided on the type of gift you want to leave, the next step is to either draft a new will or amend an existing one. If you already have a will, a codicil - a legal document that allows you to make amendments to your existing will without having to draft a new one - can be added to include the charity.
4. Notify the charity: it's a good idea to let the charity know that you've included them in your will. This can help them plan future projects and also gives you the opportunity to become more involved with the charity during your lifetime.
5. Record-keeping: keep all relevant documents, such as your will or codicil, in a secure location and inform your executors where they can find them when the time comes. It is usually best to use a law firm to create your will, as they can keep the document secure on your behalf.

Important Limitations and Considerations

When making the decision to leave part of your estate to charity, there are some limitations you should be aware of. These include:

• Impact on family and loved ones: while leaving part of your estate to charity is commendable, it's essential to consider the impact this may have on your family and loved ones, especially if it significantly reduces their inheritance. With proper planning, you can make sure that the administration of your estate is done in a way that benefits all of the involved parties.
• Regulatory oversight: before you commit to leaving a gift to a particular charity, it's advisable to do some research. Make sure the charity is registered, reputable and has a track record of using donations effectively. This is particularly important for substantial gifts that could significantly benefit a charity's operations.
• Binding commitments: once you've committed to a charitable gift in your will, changing your mind could require legal processes like drafting a new will, which could be inconvenient and time-consuming. Get legal advice before making any binding decisions to make sure you're making the right choices.