A significant amount of charities’ income is made up of gifts left in Wills. Leaving a gift in your Will to a charity that you support could help them conduct vital research, or support society’s most vulnerable people. Without the support of gifts in Wills, many charities would fail to survive.
However, it is not only the charity and those it supports that may benefit. Leaving a donation to charity can be an important part of Inheritance Tax and estate planning. In this post, we look at some of the benefits of leaving a gift to charity in your Will and some of the questions you may have about doing so.
You can leave money to a charity in your Will in two ways.
Firstly, you could name a charity or multiple charities that you wish to donate to in your Will. If you choose to donate to specific charities, it is important to include the name of the charity and their registered charity number to avoid any confusion.
Alternatively, you may allow your estate's Trustees to decide how any charitable donation is to be distributed. You may wish to leave clear instructions concerning your wishes and discuss it with them, so they make decisions that align with your intentions.
Whilst you can leave a cash sum to a charity in your Will, you can leave other gifts too. You may wish to leave a particular piece of property or an asset. You can also leave a share or the whole of your residuary estate to charity.
If you are concerned about your Inheritance Tax liability, you could mitigate what is due by giving some of your money to charity. When you leave part of your estate - or your entire estate - to charity, you can reduce, or in some cases eliminate, your Inheritance Tax bill.
If you leave something to charity in your Will, it will not form part of the taxable value of your estate.
Furthermore, if you leave 10% or more of your net estate to charity, you can, under the current tax regime, reduce the Inheritance Tax rate to be paid on the rest of your estate from 40% to 36%.
In Scotland and in England and Wales, the general principle governing the succession to your estate is that of testamentary freedom, whereby you can leave your estate to whomever you wish in your Will. Having said that, in Scotland there exists a doctrine known as ‘legal rights’ which is a form of forced heirship giving your spouse and/or children an automatic right to claim a fixed proportion (either one half or one third) of your moveable estate. There is no forced heirship concept in England, although the Inheritance (Provision for Family and Dependants) Act 1975 enables certain categories of people to apply to the Court and make a claim against a deceased person’s estate, alleging that the deceased did not make reasonable financial provision for them. Accordingly, there is a possibility that if you leave your entire - or a substantial amount - of your estate to charity, your family may be able to claim their ‘legal rights’ in Scotland (see our Insight blog ‘Scotland’s System of Legal Rights’), or make a claim under the 1975 Act in England.
Furthermore, a family member may also contest a charitable donation where they have reason to believe that you were under undue influence when the gift was made, or if they believe you were not of sound mind when making the gift. In cases of undue influence or mental incapacity, the family member may contest the gift or look to have the entire Will declared invalid (see our Insight blog ‘How can a Will be challenged in Scotland?’).
If you have any questions about the issues covered here, or if you would like to discuss any Estate Planning, Will or Trusts matter with our specialist lawyers, please complete our contact form or call 0131 225 1200.
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