7 Things To Know About Leaving Money To Charity In Your Will
Whether or not you should leave money to charity in your will isn’t a simple yes or no answer. There are a few key things to think about before you do it. Here we’ll look at how it affects the rest of your estate and any additional benefits you’ll get if you leave money to charity.
What You Should Charitable Gifts In Your Will
1. No tax is payable
Anything you give to charity will be exempt from tax. Furthermore, the amount you give will be deducted from your estate before inheritance tax (IHT) is worked out.
For example, you have £350,000 in cash and the inheritance tax threshold is £325,000. This means that your family would usually have to pay the 40% tax on the £25,000 above the threshold. In this instance, £10,000 would go to the government.
If, instead, you donated £25,000 to charity, it would be deducted from the estate before tax is calculated. This would mean £325,000 is left to your family, on which no tax would be paid as it’s at the threshold.
2. Leaving 10% of your estate will cut your IHT bill
Another key consideration is that if you leave 10% or more charity, you will cut down your inheritance tax bill. It will drop from the usual 40% down to 36% for the rest of the estate.
If you’re already planning on giving over 5% of your estate to charity then it can make financial sense to actually increase that amount to 10%. Due to the drop in IHT, your family can end up being better off if you give a little extra as it reduces the amount you have to give to the government.
The benefits of this will change on a case by case basis and it's a good idea to work it out before you decide what to do.
3. It’s better than giving via life insurance
You can either give money to charity via your life insurance or your will. Leaving it in your will can be the better option. The reason for that is because there is no tax on life insurance payouts and it will be processed almost straight away.
Life insurance can give your family access to funds that can help with funeral costs, paying debts and any tax. When leaving money to charity in your will, you get the tax benefits that come with it and it's easier for them.
4. You can be specific about the use of funds
In your will, you can dictate how your funds are going to be spent. This could be anything you want that is relevant to the charity. It could be a building or a playground or towards vital research.
If you wanted to do this, it’s a good idea to talk through your ideas with the charity first. That way you can know what steps you should take and what’s feasible. This can be a good way to have something that you’ll be remembered by.
5. You can give more than money
When it comes to giving to charity, many people presume that it's going to be a monetary figure. In truth, you can give anything you want. You can give an asset to a charity that they can then use or sell. This could be an expensive piece of equipment they will use, a property they can sell, or even artwork they can display.
As we explained above, anything you give will be exempt from your estate for the purposes of valuing it for tax purposes. It can be a good way of giving to charity and benefitting your family as they wouldn’t need it valued.
6. You should be specific about the charity
There are a vast number of charities out there and many of them have the same, or similar, name. With over 370,000 charities registered on the government database, you don’t want there to be any confusion about exactly where the money is going.
While some charities can have the same name, each one will have a unique charity number. When writing in your will, you should give the exact charity name and their number. That way you’ll know the funds are going exactly where you want.
7. There’s only one rule
You may want to give all of your wealth and estate to a charity and there's nothing stopping you from doing that as long as they are in your sole name. It’s your will and you may feel as though family members don’t need financial help or you feel a charity benefitting is more important.
The only way it can be contested is if you’ve not made a reasonable financial provision for someone who was financially dependent on you. If someone feels that your will isn’t meeting their needs, they can contest the will and the court will decide what provisions, if any, they deserve.
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