Your most precious gift
Christmas is the time for giving, says MARGARET DIBBEN. So now is the perfect occasion to think about the ultimate charitable donation: what you leave in your will
Where there’s a will, there is a charity hoping to receive a slice of the estate. Income from charitable legacies – donations written into wills – is worth over £2 billion a year and is, not surprisingly, a crucial element of charities’ income – at least those charities lucky enough to receive legacy income. Donations mainly go to the best-known charities because they already have a high profile and have more money to spend on marketing.
Still, only comparatively few people leave legacies or bequests, compared with their generosity during their lifetime, but the situation is improving. More of us are leaving larger amounts and bigger percentages of our estates.
One motivation for this increased giving could be the tweak to inheritance tax rules a few years ago. Anything you leave to charity is free of tax but now, if you leave a legacy worth 10 per cent or more of your assets, your estate will pay inheritance tax at 36 per cent instead of the usual 40 per cent.
In contrast, another tax change starting next April could result in fewer legacies, when cutting a tax bill is the motive. Then people will be able to pass on the family home to their direct descendants free of inheritance tax, up to a limit, giving couples eventually an inheritance tax-free band worth £1 million or £500,000 each.
Legacies can be a fixed amount or any money left over after your other gifts have been paid. But before you can leave a legacy, you have to make a will.
Solicitors are mostly responsible for drawing up wills, and charities have identified them as key to increasing their legacy income.
Legacy10 was launched five years ago to encourage people to give at least 10 per cent of their wealth to charity. The Government has not picked up all the campaign’s suggestions but Legacy10 has encouraged more solicitors to discuss legacies when helping clients draw up their wills.
This idea was also picked up by a consortium Remember a Charity which in return allows solicitors to advertise on its website. Two-thirds of solicitors now make a point of mentioning legacies and, while this does not automatically mean clients will leave money to charity, Remember A Charity research shows that people are three times more likely to.
You can say in your will that you give a certain amount to charity in general, allowing your executors to choose exactly which when the time comes, but it is better to name the charities yourself. Legacy research company Smee & Ford tracks wills and alerts charities when there is money up for grabs, so your family can be bombarded with requests from numerous charities after your will is published.
There is, though, a risk that a small local charity might have closed by the time you die, so you should include a clause allowing the money to go to a different charity if necessary.
You can overcome both these problems by using the Charities Aid Foundation (CAF). You name CAF in your will and tell CAF which charities you want to support. You can change your mind as often as you want. Look at the website www.cafonline.org/ my-personal-giving/long-term-giving/ legacies.
The typical donor is no longer the single, older woman. Baby boomers increasingly have spare income and spare time to research the charities they want to support. So older people are finding themselves increasingly targeted by charities, at the same time as many have become less trusting of charities than they used to be.
They are more exacting of the charities they support and are less inclined to let charities decide what to do with their donations. This can throw up problems for the charities. Donors who take a keen interest in how their money will be spent can become quite demanding, while charities would prefer flexibility to spend legacies as they need at the time.
Another problem that charities face is the disappointed relative who was expecting a windfall. To avoid a challenge in the courts, tell your family beforehand and choose charities you have supported for many years. If the legacy were your first donation, a judge might decide that your family deserved your money more.
Charities now realise that they must cooperate with donors and cannot afford to take them for granted. Today donors can be more assertive. You can ask to discuss potential legacies with charities before finalising your will to make sure both sides are happy with how the money will be used.
‘A problem that charities face is the disappointed relative who was expecting a windfall’