It seems that people in the UK are a charitable bunch. In fact, last year, just under £3 billion was donated to charity in wills, which is expected to rise to £3.4 billion by 2022. This figure means that 3.5% of all of the money left in estates is now comprised of charitable giving.
What sort of charities benefit?
There is certainly no shortage of choice when it comes to picking a charity, but there are four industries that receive more than the rest. The lion’s share (38%) goes to healthcare causes, with Cancer Research UK coming out on top. After that, animal charities get the next biggest portion with 15%, followed closely by disability charities and conservation each receiving 8% of legacies.
Writing a will
When writing a will, the main thing you need to decide is how you will divide up your property and money. The people or organisations you leave money to are called beneficiaries.
Some of your assets will be easier to put a value on, such as savings accounts and valuable items. However, other things will require an educated guess or formal valuation: for example, your property, investments or business.
The tax benefits of giving to charity
If you plan to leave everything to your spouse, that is tax-free, but leaving money to anyone else means your estate may be eligible for inheritance tax. Often described as the ‘most hated tax’, inheritance tax is charged at 40% of estates with a value of over £325,000.
However, leaving money to charity can substantially cut or remove the need for an inheritance tax bill.
- Eliminate your inheritance tax bill
If your total estate is worth over £325,000, you can donate enough to bring it under this amount, meaning the amount left can be split between family and friends without being subject to tax.
- Reduce your inheritance tax bill
Giving at least 10% of your estate to charity means that inheritance tax is reduced down from 40% to 36%, even if the value of the remaining estate remains above £325,000.
Three types of legacy
There are three different ways to gift your money to charity:
This is the most common, and the simplest form of legacy. This is when you leave a set amount of cash to a particular beneficiary. For example, leaving £7,000 to The Donkey Sanctuary.
This is when you leave a specific item, perhaps some stocks or shares, a valuable item or a property to a beneficiary. For example, leaving a holiday cottage to Marie Curie.
A residuary beneficiary is a person or organisation who receives the remaining balance of the estate when everything else has been paid (debts, gifts, and taxes). For example, Oxfam could be a residuary beneficiary if they are left the balance of the estate after all other costs and gifts have been paid out.
What happens when problems occur
There are several different issues that can happen when an executor is executing the duties set out in your will.
- A gift no longer exists. You could have left your engagement ring to your daughter in your will, but it was stolen in a house burglary after the will was written.
- Legacies cannot be fulfilled. Your financial situation could deplete between the time of writing your will and your death, meaning that the executor cannot fulfil all cash gifts.
- The estate is insolvent. In some cases, after paying debts and costs, there is no money left for any gifts of any form.
In these cases, the best route is to instruct a probate solicitor from the outset. They are able to execute the will, prioritising debts and costs first and ensuring that beneficiaries get the correct proportion of what is remaining. They are trained in dealing with a range of different circumstances, ensuring that the estate is distributed according to the terms of any will and the law.
For further advice, please contact a member of our team on 01491 572138 or via email – [email protected]