Generally, we are an extremely charitable bunch. Over the last year, it is understood that the British public gave nearly £10 billion to their favourite charities with a significant part of those donations being legacies left in a Will. Leaving money to charity has never been more popular, with the majority of us gifting to charity each year whether through regular monthly contributions, one off contributions or leaving legacies on our death. Last year almost £3 billion of donations were made through “legacy income” making it the largest single source of income to the charitable sector and vital to the ongoing success of many individual charities.
When leaving a legacy to charity there are three main types, pecuniary, specific or residuary. A pecuniary legacy is a fixed sum of money and is the most popular but can also be the most problematic. For example, if prior to death you enter a care home your estate could be substantially less than you intended and a sizeable pecuniary legacy may deprive family beneficiaries of a valuable part of your estate. Equally, if the Will is written many years before your death, the rate of inflation is a consideration as a legacy of £1,000 today will be much less valuable if the legacy is paid in 20 years’ time. If you do choose to leave a pecuniary legacy in your Will it is important to regularly assess the situation and update your Will accordingly.
You can also leave a specific item of property to a charity. As with a pecuniary legacy it is important to remember that the value of that particular asset can vary over time and to remember that should you not own that asset at your date of death the whole charitable legacy would fail.
In a residuary legacy you would leave a set percentage of the net value of your estate and this can be more flexible if you are concerned about changes to the value of your estate. No matter what the size of your estate at your date of death the charities and other beneficiaries will all receive their set percentage of your estate meaning increases or decreases in the value of the estate are shared equally amongst the various beneficiaries.
Apart from providing valuable support to your chosen charities there are also financial benefits to leaving part of your estate to charity. Inheritance Tax payments each year are now in excess of £5 billion and the personal nil rate band for Inheritance Tax remains at £325,000 per person. Leaving money to charity can be a way of reducing how much of your estate ends up with HMRC. Any part of your estate left to a charity will not count towards the taxable value of your estate. If you leave at least 10% of your estate to charity that can cut your rate of Inheritance Tax from 40% to 36%.
Everybody’s estate planning is different and it is important to seek the advice of a solicitor to ensure that your estate planning best fits your needs.