Leaving money to charity in a will

As people with significant personal wealth get older and start to think about their legacies, as well as taking care of their own families, it appears that many look to provide assistance to those less well-off. One of the ways that those with substantial wealth look to do this is through the setting up of a charity, either via their will on death, or during their lifetime.

Why set up a charity?

• Individuals may choose to leave gifts to charities in their wills or make regular gifts during their lifetime.
• People with substantial wealth may set up a grant-making charity to create an ongoing legacy and ensure funds are managed to support causes close to their hearts.
• Setting up a charity can have tax advantages for both the individual and the charity, as most of the income and capital gains of a charity are tax-free and charities can claim back Income Tax through the Gift Aid scheme.
• Gifts to UK charities on a person’s death can be free of Inheritance Tax and if 10% of a person’s assets are left to charities, the rest of the estate can qualify for a reduced rate of Inheritance Tax.

Setting up a charity can have a number of tax advantages too, both for the individual and the charity. Most of the income and capital gains of a charity are tax-free and charities can also claim back the Income Tax that has been deducted from donations through the Gift Aid scheme.

From an estate planning point of view, gifts to UK charities on a person’s death can be appealing as they are free of Inheritance Tax. On top of this, if 10% of a person’s assets on their death are left to charities, the rest of the estate can qualify for a reduced rate of Inheritance Tax. This can, in certain circumstances, reduce the overall Inheritance Tax payable on a person’s death.

Setting up a structure to give back to worthy causes can be fairly straightforward through the creation of a charitable trust. However, those considering this should take advice on the most suitable structure given their circumstances, the kind of activities the charitable will be undertaking, and the assets the charity will hold.

Can a will be contested if money is left to charity?

• A will can be contested if money is left to charity, but it’s less likely than if left to an individual beneficiary
• A will can be contested if there are doubts about its validity or the mental capacity of the testator at the time of making the will
• If there are allegations of undue influence or fraud, the will may be contested
• If the will is valid and there are no concerns about mental capacity or undue influence or fraud, it’s unlikely to be successfully contested even if most of the estate is left to charity

What is the best way to leave money to charity?

The best way to leave money to charity depends on your personal circumstances, charitable interests, and financial goals.

1. Make sure your wishes are upheld

It is important that having made the decision to make a will and benefit a charity, that a donor’s wishes are upheld.  Unfortunately, the rules on making a will are strict and if not followed properly, then the will is not valid and the gift fails. This often doesn’t come to light until after a person has died and by then it’s too late to rectify. It can also happen that disappointed family members may also try to challenge the validity of a will after a person’s death, or bring a claim against the estate for financial provision.

With an aging population and family relationships getting ever more complex, we have seen a steady increase in claims relating to wills and estates.  We expect this trend to continue especially for wills made during the current pandemic.  If a will challenge is successful, the will is overturned and the important gift meant for the charity never reaches them.   Even if the claim is unsuccessful, it will have caused delay and stress and the charity is still likely to have used up some (if not all) of the value of the gift in legal fees.

Whilst it’s not possible for an individual to completely safeguard their legacy and prevent claims being made, there are some steps which they can take to reduce the risks.

2. Use a solicitor

These days a will can be downloaded from the internet for less than the cost of a large family pizza and while the technology offers speed and ease and may save some money in the short term – it can often simply be false economy.  No independent advice is given about the terms of the will and no one is checking the donor’s capacity. And there is often that suspicion that the person sat behind the laptop completing the will form is not actually the 80 year old donor themselves but rather someone else. Charities may inadvertently find themselves caught up in such issues and they risk losing the gift over the perceptions and suspicions of disappointed family members.

Therefore, donors who wish to leave legacies to charities are encouraged to use a solicitor or professional will writer to prepare their will as:

• The solicitor can ensure that the donor’s wishes are followed properly and recorded, particularly their reasons for making the legacy to the charity if it is to the detriment of other family members.
• The solicitor can ensure that the will is validly executed (many wills are invalid because they aren’t witnessed properly)
• The solicitor should satisfy themselves that the donor has capacity to make the will and to advise the donor to get a medical report if capacity is in doubt.

If a claim is made against the estate, then the solicitor’s will file will contain crucial evidence and the solicitor who prepared the will can be a key witness.

3. Communication

Donors should communicate with their family and be open about their testamentary wishes either speaking to them during their lifetime or leaving a letter of wishes with their will setting out their reasons.  Some family members simply cannot accept that their parent/relative didn’t want them to inherit and are immediately suspicious of any will which doesn’t align with their expectations, even if there is no real grounds to contest it.  If the donor has had “the conversation” with their family and addressed concerns during their lifetime or else left a note detailing their reasons, then that makes it less likely a claim will be made against the estate.

4. Education

When the terms of the will become known, charities should be encouraged to liaise with the donor’s family members in a timely and sensitive manner– explaining the good work that the charity does, how the legacy will be used and how the legacy is not a windfall for the charity, but helps keep the charity operating.

The charity can also use this opportunity to address the often held mistaken belief that the charity is free to give the money back to the family if they really wanted to. Many people simply don’t know that the charity is legally obliged to only use legacies for its charitable purposes and only in very specific circumstances is it free to depart from that.

As legacy giving is on the increase, so are disputes so it’s always important that if a charity is faced with a challenge to a will or a claim against an estate, that they take their own specialist legal advice.

5. The small print

It is important to remember that most charities other than the very smallest will need to be registered with the Charity Commission in order to be recognised by HMRC and gain the tax advantages that come with charitable status.  Those setting up a charity need to be aware of the requirements and conditions of registration from the outset when preparing their governing document and deciding on their objectives.

Although running a charity can be very rewarding, it is important that the administration and reporting requirements are fully complied with and the charity is properly managed.

If this is the route you would like to explore to ensure that your wealth is leaping into action for those less fortunate, the team can advise and assist with the setup and ongoing running of a charity. This will ensure that all taxation and reporting requirements are fully met with, allowing those that run the charity to get on with the work of benefitting worthy organisations and individuals leaving those charitable trustees leaping for joy!