Making a Will is one of the most important steps you can take to protect your loved ones and ensure your wishes are followed after you pass away. Many people do not realise is that it is also an opportunity to support causes close to your heart. Leaving money to charity in your Will can make a lasting difference to a cause you care about, while also providing potential tax benefits to your estate.
In this article, Kirsty Gazzard, from our Wills, Probate, and Estate Planning department, shares her insight on charitable legacies, how to include them in your Will, what types of gifts you can make and how this can affect Inheritance Tax.
What is a legacy in a Will?
A legacy is simply a gift that you can leave to an individual or to charitable causes in your Will, which can be money, property, or other assets. The different types of legacies you can include in your Will are:
- Pecuniary Legacy: A fixed amount of money given to a person or charity; or
- Residuary Legacy: A percentage or share of what remains of your estate after all liabilities, taxes, and other gifts have been made.
Understanding the difference between pecuniary and residuary gifts is key when planning your Will. Residuary gifts often hold greater value in the long term because they keep up with inflation and estate growth. However, some people prefer to leave pecuniary legacies for the certainty of a fixed amount.
Why should I leave money to charity in my Will?
Leaving money to charity in your Will is a powerful way to create a lasting legacy, allowing your values and passions to continue making a difference to your chosen charity long after your lifetime. Charitable legacies have several benefits:
- It provides long-term support to charities;
- Ensures your values live on;
- You can state how you wish your gift to be used; and
- It may reduce your estate's Inheritance Tax liability for your family and loved ones.
Inheritance Tax and charitable giving
Leaving a gift to charity in your Will can have a positive impact on the amount of Inheritance Tax (IHT) your family and loved ones may have to pay. Charitable legacies are 100% exempt from IHT, meaning anything you leave to a registered charity is completely tax-free. Additionally, if you leave 10% or more of your net estate to charity, the rate of IHT applied to the rest of your estate will be reduced from 40% to 36%, lowering the overall tax liability.
DIY Wills: the dangers of doing your Will yourself
While it may be tempting to write your own Will, speaking to a legal professional is essential to ensure your wishes are both legally valid and tax-efficient. DIY Wills often fall short of meeting legal requirements, which can lead to them being partially or completely invalid, potentially leaving your loved ones facing lengthy disputes or your estate being distributed in a way you never intended.
By using a lawyer, we can also advise you on ways to reduce Inheritance Tax, including the use of Trusts, lifetime gifts, and charitable legacies, helping you to preserve more of your estate for the people and causes you care about. These structures can offer significant financial benefits and peace of mind.
It is also important to update your Will following any major life events, such as marriage, divorce, or the birth of a child as this ensures your Will reflects your current circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
