Category: Making a Will

Leaving a gift to charity in your Will is a powerful way to create a lasting legacy and contribute to causes close to your heart. Charitable giving through Wills and trusts ensures your support continues after your lifetime and can also have positive tax implications for your estate, reducing the inheritance tax burden on your loved ones.

In this article, we’ll explore how charitable giving works within the context of Wills and trusts, including the various options available for charitable donations. We’ll also address what happens if a charity named in your Will or trust goes out of business, as well as the benefits and implications of making charitable bequests. 

Our Brighton solicitors at Burt Brill & Cardens are here to help you navigate these choices to ensure your wishes are clearly documented and carried out when you are writing your Will or setting up a trust.

Creating a Charitable Trust

Creating a charitable trust is a powerful way to structure a lasting gift, allowing you to support a cause long after your lifetime. A charitable trust sets aside funds or assets specifically for charitable purposes. It can offer various benefits, including ongoing support for specific causes, tax relief for your estate, and structured management by trustees. Here’s a closer look at how charitable trusts work, the types available, and the advantages they offer.

How Charitable Trusts Work

A charitable trust is a legal structure set up to manage and distribute assets to one or more chosen charities. As the donor, you transfer funds, property, or other assets to the trust, and trustees are appointed to oversee the administration and ensure your wishes are followed. You can specify how and when the funds are to be distributed, ensuring your contribution aligns with your values and long-term goals.

Charitable trusts can be created in two main ways:

• Lifetime trust: This type of trust is established during your lifetime and allows you to make ongoing donations while also potentially receiving tax benefits on income or capital gains. Lifetime trusts are particularly useful if you want to see the impact of your gift during your lifetime.
• Testamentary trust: Established through your Will, this type of trust takes effect upon your death. Testamentary trusts offer similar benefits in terms of charitable impact and tax relief, but you won’t see the results during your lifetime. These trusts are a good option if you want to leave a significant part of your estate to charity after other beneficiaries have been provided for.

Setting up a Charitable Trust

Establishing a charitable trust requires meticulous planning to ensure it serves exclusively charitable purposes and complies with UK law. To qualify as charitable, the trust’s activities and objectives must be solely charitable. If the trust meets the required income thresholds, it must also be registered with the Charity Commission to maintain legal compliance and transparency. Consulting an experienced solicitor is crucial to drafting the trust deed, advising on trustee responsibilities, and navigating the associated tax benefits effectively. 

At Burt Brill & Cardens, our solicitors in Brighton are experienced in setting up charitable trusts that honour clients’ values while ensuring legal precision. If you’re considering creating a charitable trust, we can guide you through each step, helping you maximise the impact of your legacy for years to come.

Related: 8 of the Most Common Questions about Trusts and Trust Funds 

Charitable Giving Through Wills

Charitable giving through Wills is also a meaningful way to leave a lasting legacy, allowing you to support causes close to your heart while providing tax benefits for your estate. By including charitable donations in your Will, you ensure your money, property, or other assets are distributed according to your wishes after your death. It’s a way of positively impacting society and ensuring your values continue to be upheld long after you’re gone.

Why Include Charitable Giving in Your Will?

There are many reasons why people choose to include charitable gifts in their Wills. It may stem from a desire to support a cause that has had a personal impact or to continue the work of a charity you’ve supported during your lifetime. Here are some of the key reasons why charitable giving through Wills is a popular choice:

1. Leaving a legacy: By incorporating charitable donations into your Will, you are preserving your memory after you are gone. This legacy can make a tangible difference to the causes that are important to you.
2. Inheritance tax relief: Including charitable donations in your Will can reduce the inheritance tax payable on your estate. The government offers a reduced inheritance tax rate of 36% (down from 40%) if you leave at least 10% of your estate to charity. While this can lessen the overall tax impact on non-charitable beneficiaries, it’s important to note that they may still receive less than if no charitable gift had been made. Nonetheless, charitable giving remains a thoughtful way to support meaningful causes while potentially reducing the tax burden on your estate.
3. Supporting causes close to your heart: Many people have strong personal connections with charities or causes they support, whether related to healthcare, the environment, education, or animal welfare. By including a charity in your Will, you ensure it continues to benefit from your generosity.
4. Supporting meaningful causes while considering family needs: Charitable giving allows you to support causes that are meaningful to you, but it’s important to note that it may reduce the assets available for distribution to family members. By including a charitable gift in your estate planning, you can balance your desire to give back with providing for your loved ones, ensuring your legacy reflects your values and priorities.

How Charitable Giving Works Through Wills

There are several ways in which charitable giving can be included in a Will. The type of gift you choose to leave will depend on the assets in your estate and your wishes. Below are the different options for making charitable donations in your Will:

1. Pecuniary Gifts (Cash Gifts)

This is the most straightforward way of giving. A pecuniary gift involves leaving a specified sum of money to a charity in your Will. This type of gift is ideal if you want to make a clear financial contribution to a cause. It’s important to ensure the amount is clearly stated to avoid any confusion.

2. Residuary Gifts

A residuary gift refers to what remains in your estate after debts, taxes, and other expenses have been settled. This can include property, savings, investments, or other assets. Leaving a percentage of your residuary estate to a charity can be a flexible and impactful way to give, as it adjusts with changes in the value of your estate.

For example, leaving a legacy of 10% to charity, as defined by HMRC, not only supports causes you care about but also reduces the inheritance tax rate on your estate from 40% to 36%. This can be more beneficial for your family compared to leaving a smaller percentage, such as 8%, which does not trigger the reduced tax rate and could ultimately cost your loved ones more. Residuary gifts are a thoughtful way to balance charitable giving with providing for your family or other beneficiaries.

3. Specific Gifts (Non-monetary Gifts)

Rather than leaving money, you might want to leave specific items, such as property, jewellery, or artwork, to a charity. These gifts are often in-kind donations the charity can use or sell. These types of gifts can be highly valuable, but it’s important to ensure the charity can accept them and either use or sell them for funding.

4. Contingent Gifts

Contingent gifts are those that only take effect under certain circumstances, such as when a beneficiary (like a family member) predeceases you or chooses not to accept their inheritance. You might stipulate in your Will that, should certain conditions occur, a portion of your estate should go to a charity.

Creating a Charitable Will: Practical Considerations

Creating a charitable gift through your Will involves careful planning to ensure your wishes are properly documented and legally binding. Here are a few things to keep in mind:

• Check charitable status: Ensure the charity is a registered UK charity, as only registered charities qualify for inheritance tax relief.
• Clearly identify the charity: Include the full name, address, and charity registration number of the charity to ensure there is no confusion about which organisation will receive your gift.
• Consult with experts: Working with a solicitor is essential to ensure your Will is properly drafted, including any charitable donations. A solicitor can guide you through the tax implications, legal requirements, and best practices for leaving gifts to charity. They can also include provisions in your Will to address scenarios where a chosen charity no longer exists or has changed its name at the time of your death, ensuring your wishes are carried out as intended. Consulting with an expert will provide peace of mind that your estate plan is comprehensive and effective.

Related: The Importance of Updating Your Will 

Tax Benefits of Charitable Giving

In the UK, charitable giving through Wills and trusts can offer valuable tax benefits. Gifts made to registered charities are exempt from inheritance tax, reducing the value of your estate and potentially lowering the overall tax bill.

If you leave at least 10% of your estate to charity, the inheritance tax rate applied to the rest of your estate can be reduced from 40% to 36%. While this reduction does mean there is some cost to the family, it significantly lessens the tax burden compared to no charitable gift at all, where beneficiaries would be subject to a full 40% tax on the entire estate. The reduced IHT rate makes this a tax-efficient strategy, offering considerable benefit to charitable causes while keeping the impact on the family relatively low.

Choosing the Right Charity

Selecting the right charity for your legacy can be deeply personal. Many people choose charities they supported during their lives or organisations aligned with causes they’re passionate about. It’s essential to ensure the charity is registered in the UK if you wish to benefit from tax exemptions.

When choosing a charity, it’s a good idea to research its financial health and transparency. Charities often have longevity, but some may be more stable than others, particularly smaller organisations. This choice will also affect what happens to your gift if the charity goes out of business or changes its structure.

What Happens If the Charity Goes Out of Business?

One concern with charitable bequests is the possibility the charity may go out of business or merge with another organisation after your Will or trust has been executed. Here’s how such situations are typically handled:

1. Cy-près doctrine: Under UK charity law, the cy-près doctrine allows courts to redirect the gift to a similar charity if the original one no longer exists. This doctrine aims to ensure your charitable intent is honoured as closely as possible, directing your bequest to a charity with a similar mission.
2. Contingency clauses: To avoid ambiguity, your solicitor can include a contingency clause in your Will. This clause specifies what should happen to the gift if the charity ceases to exist, ensuring clarity and control over your donation’s ultimate destination.
3. Choosing larger or long-established charities: If you are concerned about the longevity of the charity you wish to support, consider directing your gift to a larger or well-established charity with a proven track record and stable operations. These organisations are more likely to continue operating long into the future, ensuring your donation has a lasting impact.

Additionally, a properly drafted Will can give your executors the discretion to redirect the gift to another charity if the chosen one no longer exists or has changed its name at the time of your death. This flexibility helps ensure that your charitable intent is fulfilled, even if the charity you originally selected is no longer active.

Our solicitors can assist you in crafting these provisions to provide security for your charitable donations and peace of mind for you.

Leaving a Legacy That Lasts

Creating a charitable legacy through your Will or a trust is a way to make a positive impact on the world beyond your lifetime. It offers the opportunity to influence causes you believe in, benefit others, and reduce your estate’s tax burden. By working with experienced solicitors, you can ensure your legacy is thoughtfully planned and legally secure.

Our Brighton solicitors at Burt Brill & Cardens are here to guide you through the process of charitable giving through Wills and trusts, ensuring your wishes are preserved for generations to come. Contact our team today at 01273 604 123 or via email at enquire@bbc-law.co.uk to start planning your legacy. You can also make an enquiry and we will get back to you.