Charities greatly appreciate people’s generosity, as it is vital to the continuance of their works.
During your lifetime you can support your chosen Charities through volunteering your time, donating items for them to sell or, gifting them money. Any gift of money is usually eligible for gift aid in the hands of the charity (essentially the Government adds 20p for every 80p you donate) and income tax relief for the donor at their highest marginal tax rate.
Gifts on death tend to be of a more substantial nature. These gifts, known as a ‘legacy’ are not counted in your estate for inheritance tax (IHT) –reducing the amount of IHT due. If the amount left to Charities is at least 10% of the net estate at the date of death, the IHT rate applying to the residual estate also reduces from 40% to 36%.
This all sounds simple doesn’t it; but in leaving a legacy to Charity, you should be aware that a Charity has a different legal status to a private individual, thus is subject to stringent legislation.
Each charity is the responsibility of its Trustees who have duties to the Charity’s work. In addition to complying with numerous rules and regulations, trustee duties also include ensuring that any funds left are used for the purpose for which they have been given (if applicable) and ensuring that the charity receives full benefit from the donor (i.e. maximum value for estate assets). However, if the legacies have not been carefully thought out, these two responsibilities can cause distress for executors at a difficult emotional time.
Below are two example scenarios that on the face of it seem reasonable, but could cause some distress to executors:
Scenario 1 – “I leave an amount equal to 10% of my net estate to ABC Charity”
Scenario 2 – “I leave £10,000 to DEF Charity to perform XYZ purpose”
Scenario 1 Issue – The Charity Trustees, upon reviewing the Will and estate account feel that certain assets have been undervalued and as such the Charity has not received the full amount as dictated in the Will. This could result in having to obtain further valuations of major assets and distribute further money to the charity instead of the other beneficiaries.
Scenario 2 Issue – DEF Charity do not perform XYZ purpose. In this instance they may not be able to accept the legacy and additional guidance may be required from their regulator, or even the courts – this could be time consuming and / or costly.
When updating your Will, your solicitor should be able to help with solutions to any potential issues like those highlighted above (for example, gifting a set amount and not stating a particular purpose for the money) – thereby allowing your chosen charities to receive the legacies you wish, whilst not causing your executors any additional issues.
Simplicity is the key here.
This material is provided for information purposes only and does not constitute advice. The information is based upon the authors understanding of the taxation, legislation and regulations at the time of writing. Any level and bases of, and reliefs from taxation are subject to change.