Discussions around estate planning often focus on asset protection, tax implications, and ensuring a smooth transition of wealth to the next generation.
However, charitable contributions and philanthropy can help to reduce your Inheritance Tax (IHT) obligations whilst providing a positive impact on society and leaving a lasting legacy.
Donna Smy, one of our Private Client Directors, breaks down some of the positive aspects of philanthropy that go beyond a charity’s immediate impact.
Why should you include charitable contributions in your Will?
- Legacy building: Philanthropy allows you to leave a lasting impact that transcends material wealth. By donating to charity your estate can serve a wider societal benefit.
- Family values: Including charitable giving in your will can also serve as a lesson in compassion and social responsibility for your other inheritors.
- Tax benefits: There are several ways in which charitable contributions could benefit you and your inheritors, as discussed below.
IHT benefits of charitable contributions
Incorporating charitable donations in your Will can significantly reduce your IHT obligations.
Gifts to registered charities are usually exempt from IHT, providing a tax-efficient way to distribute your estate.
Furthermore, if you leave at least ten per cent of your “net estate” to charity, the IHT rate on the rest of your assets may be reduced from 40 per cent to 36 per cent.
This can result in substantial savings, making it a win-win situation for both your beneficiaries and the charitable organisations you wish to support.
How to incorporate philanthropy into your Will
It is always best to consult a solicitor when making changes to your Will. They can help to include clauses in the document that distribute your assets based on your wishes.
Specific gifts: You can specify particular assets or a fixed sum of money to be given to a charity of your choice.
Residuary gifts: After all debts, expenses, and specific gifts have been accounted for, you can allocate a percentage of the remaining estate to a charitable organisation.
Conditional gifts: In scenarios where your primary beneficiaries are unable to inherit (e.g., they predecease you), you can designate a charity as a contingent beneficiary.
Legal considerations
It’s crucial to consult with a solicitor experienced in estate planning to ensure that your charitable contributions are legally sound and tax efficient.
Proper wording is essential to avoid any ambiguity that could lead to disputes or complications.
Incorporating charitable contributions into your Will is not just a noble act but also a strategic component of comprehensive estate planning.
To discuss potential strategies for reducing your IHT obligations, please contact one of our expert solicitors.
In aid of Dementia Awareness Week (13 - 17 May 2024) Palmers Solicitors are proud to support Alzheimer’s Society (RCN 296645) to help end the devastation caused by dementia.