Does charity always begin at home?

The value of charitable donations made through gifts donated in wills has risen by 50% over the last decade.

Latest published figures show a year-on-year increase in charitable bequests

The value of charitable donations made through gifts donated in wills has risen by 50% over the last decade, with a total of £3 billion being donated in this way in 2018. Despite the increase in donations however, nine out of the 25 highest earning organisations each earned less than it had in the year before.

Commentators have suggested that the most recent figures show a clear shift in gifting patterns, with legacy donors choosing who they leave their money to much more carefully than ever before. Smaller charities seem to be benefitting from this attitude shift and it is undoubtedly the case that the widespread media coverage of scandals at high profile charitable organisations such as Kids Company in 2015 and more recently Oxfam in 2018 may well also have contributed to these statistics. 

Donations received from legacy donations often make up a significant proportion of the voluntary income for charities, with statistics showing that legacy donations fund six in 10 lifeboat launches and two in three guide dogs.

For people who are interested in leaving gifts to charitable causes, there is also a potential inheritance tax advantage. Gifts to UK registered charities on death are exempt from inheritance tax. In addition, a change to the law in 2012 meant that if a person leaves 10% of their estate to a charity, inheritance tax is charged at 36% rather than the usual flat rate of 40%. This can be an attractive proposition to testators who are already looking to benefit charities in their will.

The rules on how to work out what you can give away to charity to secure the lower tax rate aren’t always straightforward, so it’s a good idea to get the advice of a solicitor or accountant who specialises in estate planning. Careful estate planning is required to ensure that the reduced IHT rate of 36% can be applied on death.

It is also possible to incorporate a discretionary trust in a will which gives the testator the flexibility to provide a detailed letter of wishes to their trustees confirming their intentions as to the distribution of funds following their death. This allows the trustees to distribute the trust fund at their discretion rather than an automatic gift to charity, This enables the trustees to decide when a distribution is made, which charity will benefit and by how much. Creating a discretionary trust on death would also allow the trustees to have an open dialogue with the proposed charity beneficiaries about how any donation is to be used. If this will structure is implemented, it is also possible for a testator to prepare a letter of wishes giving guidance to the trustees as to how they intend the trust fund to be dealt with following their death. This letter of wishes can be amended as often as is required during the testator’s lifetime without changing the terms of the will.

Another option would be for testators to gift a legacy in their will into a charitable trust which they have set up in their lifetime. This can give testators the opportunity to set the objectives of the charitable trust and appoint trustees who are willing and capable of managing the trust on an ongoing basis.

For further information please contact Sally Cook, Solicitor on 0161 214 0597 or sally.cook@weightmans.com.

If you would like to obtain further estate planning advice generally or in relation to lifetime giving, our team of specialist advisors will be able to assist. You can contact us by calling 0345 0739900 and asking to speak to a member of the Wills, Trusts and Estates team.

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