Legacies

Giving money to charities during your lifetime can be highly rewarding. Most people enjoy being involved with a cause that is close to their heart and seeing their gift make a difference to the lives of those the charity works with.

Many people feel that they might like to be more generous to the charities they support, but are concerned about their own savings. They want to make sure that they have considered all the likely demands on their resources, and have made appropriate plans for their children, parents (if they are still alive) and other dependants and for their own old age.

Some find that making a decision to give to charities after their death is also satisfying - it costs the donor nothing in their lifetime and yet it can help protect the long-term future of their favourite causes. But to do so it is necessary to have a will. This is also the main way to protect the future of your own family. Without a will, it will not be clear how you want your estate to be dealt with. Without a will you will lose freedom of choice. What is more, you should not assume that if you die without a will, your family and others will be provided for as you would want. Legacies should be seen as part of a strategic approach to giving and part of the planning for distributing your assets after you die.

When someone dies or when assets are transferred to a discretionary trust (a trust whose trustees can choose who should benefit from the trust and how much they should receive) or to a company, inheritance tax (IHT) must be paid if the estate or the value of the assets transferred is more than the tax threshold. For 2005/2006, the tax threshold is £275,000.

IHT does not apply to gifts made to charities in your will.

There are two different ways of leaving money to charities in your will.

1. You may want to leave a specific amount of money. This is sometimes called a pecuniary gift. You may also leave a particular item (such as jewellery, furniture, shares or property). Gifts of works of art may be left directly to art galleries instead of paying tax. This means that more of your inheritance tax bill is settled than if the work was sold and the proceeds used to pay the tax. However, if you are considering making a non-financial gift, it is extremely important that you contact the organisation you propose to give it to, to discuss your plans.

2. You may choose to leave the residue of your estate. The residue is what is left of the value of your estate after all the specific bequests (gifts) have been met and all debts and administration expenses have been settled. You could leave the total residue, or a share of the residue, to one or more charities. This is a residuary gift.

If you have set up a charitable trust, it can be a beneficiary of your will, and no inheritance tax will be due on the amount given to the trust.

If you have already made a will, you can still add another legacy by drafting a codicil. This is a separate legal document which adds to or amends the will you have already made. It should be kept with your will.

Another approach is to set up a Legacy Account with the Charities Aid Foundation. In this case, you name the CAF as the beneficiary of the amount you want to leave. You give the CAF a signed list of the charities you want to benefit, and the amount they should receive.

This list is your letter of wishes. You can change it as many times as you like, simply by writing to CAF. Unless you want to change the total amount given, you do not need to change your will itself and will not have to pay any legal costs.

After your death, the money you have left to the CAF Legacy Account will be paid by your executors into the account. CAF will then distribute your gifts according to your wishes.

CAF makes a small administrative charge for this service, which is taken when funds are received from the estate. This is usually 1% of the value of the gift.

The process of making a will

1. We would always advise you to use a solicitor when making your will. Many charities have expert legacy departments that can guide you on the process. In any case, it is a good idea to contact them if you are considering a substantial bequest.

2. A useful starting point is to make a list of all your assets and estimate how much your estate is worth. This is the net figure of all your assets, less any debts or mortgages which will have to be paid.

3. You should then make arrangements for those closest to you, and consider any other demands on your estate, before thinking about giving an amount or share to any causes you would like to support.

4. When you have decided what you would like them to receive, your solicitor will explain the best way to make sure that your will sets out exactly what you would like to happen.

5. We would advise you to appoint at least two executors in your will. They are responsible for making sure that your wishes are carried out after your death. They may be friends or family members, as well as a professional adviser such as a solicitor.

6. HM Revenue & Customs leaflet IHT3 is a useful guide to inheritance tax. Another resource is the Society of Trust and Estate Practitioners, a global membership organisation.