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How to plan philanthropic giving through your will

In 2006, the American multi-billionaire Warren Buffet astounded the media by making a pledge to give away 99 per cent of his wealth to charities. He plans to do most of this in his lifetime and intends the remainder to be given away within 10 years after his estate is settled.  A few years after this, Bill and Melinda Gates planned to give away 50 per cent of their wealth and joined forces with Warren Buffet to launch The Giving Pledge to encourage other wealthy families to donate much of their wealth.

This is probably more than most of us plan to give, but if you are thinking of making a grand philanthropic gesture in your will or in your lifetime to benefit charity, you have the power to make a remarkable difference to those in need However, it is vital to take specialist legal advice to guard against unexpected consequences or legal action by your family after your death.’

Options for giving

You can use your will to put into effect your philanthropic intentions in different ways, for example, making a one-off large gift to one charity; leaving the entire estate or a percentage of it to charity; or creating a charitable trust.

Creating a charitable trust is more complex and will require some thought as to the terms of the trust and appointment of trustees. However, this can be a particularly useful tool to ensure your particular wishes will be put into effect after you have died.

The underlying objective will be to maximise both the value and the impact of the donation you intend to make.

It could be that the most tax efficient way is to set up a charitable trust now in your lifetime, rather than under your will, for instance if you are already donating regularly to a charity. This would give you a greater degree of control as you would not be relying on nominated trustees to set it up after your death.

Beneficiaries

If your chosen charity has local branches, committees or similar, caution needs to be exercised so that your money goes exactly where you want it to go. This means considering whether you want the charity itself to benefit generally or whether, for example, you want to leave a large amount specifically to your local branch.

You might even be considering leaving cash to a charity’s subsidiary trading company, such as a social enterprise. We can guide you through these options and the potential implications for your estate.

Appointing trustees

Think carefully about who to appoint as trustees of the charitable trust fund. As the stewards of a substantial sum of money after your death, they will need to fully understand their administrative and legal role in ensuring your wishes are carried out.

They must be trustworthy and able to act in accordance with the charity’s governing rulebook or code.

As well as individual trustees, you can consider appointing a solicitor as a professional trustee. It may even be appropriate to think about the benefits of appointing a trust corporation as a trustee.

The tax benefits

Any charitable donation in your will can also reduce your estate’s inheritance tax bill, as any money given to charity under a will is exempt from inheritance tax.

The UK tax regime is not anywhere near as encouraging of philanthropy as the one in the USA, but it does include an additional incentive to give.  If you gift more than ten per cent of your estate to charity, any inheritance tax due on your net estate (excluding charitable giving) is payable at the reduced rate of 36 per cent instead of 40 per cent.

However, to qualify for tax relief the charity must have ‘charitable purposes for the public benefit’ such as education, religion, relieving poverty and health; but caution must be exercised. For example, if you leave a significant lump sum to the National Trust, but you direct that some of it is to be used to fund the running of its shops (ie a non-charitable purpose), the legacy may not be exempt from inheritance tax and your estate could be hit with a large tax bill.

If you are unsure to what extent you should limit your gift to charity (if at all), you will need specialist legal advice about the tax implications.

Avoiding a dispute

You must take particular care if you have not discussed your philanthropic goals with your family (as Warren Buffet has done) and if you think it would come as a surprise to your spouse or your children who would be counting on an inheritance.

One of the most common triggers for a dispute over a will is where a child has either been excluded under the will terms or not properly provided for.

It is important to understand that the courts are increasingly willing to allow inheritance claims by adult children, and you should consider carefully whether you have any legal obligation to provide for them.  Similarly, if you have any dependents such as a cohabiting partner or a disabled relative, you need to ensure they will be properly provided for.

For more information and advice on using your will for philanthropic purposes, please contact Kerry Davies in the experienced private client team on 01543 442101 or email kd@adcocks.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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