Leaving money to charity

Gifts in wills fund a substantial proportion of the income of many charities, and for some organisations they are the largest single source.

Making one is straightforward, and a few practical points prevent the common problems.

The types of gift

A pecuniary legacy — a fixed sum. Simple, and it erodes with inflation if the will is not updated, and it may be disproportionate if the estate turns out to be much smaller than expected.

A specific legacy — a particular item or asset.

A residuary gift — a share of what remains after other gifts and expenses.

Generally the better structure for charitable giving, since it adjusts automatically with the size of the estate and does not require updating.

Many charities prefer residuary gifts for exactly this reason.

A reversionary gift, where someone has the use of an asset for life and it passes to charity afterwards.

The practical drafting points

Name the charity precisely, including its registered number where one exists. Charity names are similar and confusion is common — several organisations may have almost identical names, operating in different countries or with different purposes.

The registration number is unambiguous.

Provide for the charity ceasing to exist. Charities merge, close and change names. A gift to an organisation that no longer exists may fail, though most jurisdictions have doctrines allowing the gift to be applied to a similar purpose.

A clause allowing the executor to pay a successor organisation, or a similar charity, prevents the problem.

Be careful with restrictions. Gifts tied to a specific project or purpose can become impossible to apply if circumstances change, and can create administrative burdens disproportionate to the amount.

Unrestricted gifts are more useful to the charity and less likely to cause difficulty. If you want to direct the gift, discuss it with the charity in advance.

Consider telling the charity. Many have legacy teams, and knowing about a pledge helps them plan. It is not binding and you can change your mind.

The tax position

In many jurisdictions, gifts to qualifying charities are exempt from estate or inheritance tax.

Some systems go further, reducing the rate applied to the rest of the estate where a defined proportion goes to charity — which can mean that giving more to charity costs the other beneficiaries less than the amount given.

Whether this applies, and the thresholds, differ by jurisdiction and change. It is worth asking specifically.

Qualifying is important: the exemption generally applies to charities registered or recognised in the relevant jurisdiction, and gifts to foreign charities may not qualify.

The family dispute problem

Charitable legacies are a common trigger for challenges, particularly where family members receive less than expected.

The circumstances that generate disputes:

A substantial gift to charity with little or nothing to children.

A gift to an organisation the family had no idea the person supported.

A will made late in life, changing previous arrangements in favour of a charity.

Suspicion of influence, particularly where a charity or a representative had contact with the person.

Charities generally defend such claims, since they have a duty to protect their assets, and litigation between a charity and a family is unpleasant for everyone and expensive.

How to reduce the risk

Tell your family. The single most effective step. A family who knows that you support a cause and intend to leave it something is unlikely to be shocked.

Explain the reasoning in a letter of wishes. Why this cause, why this amount, and — importantly — that it is not a judgement on anyone.

Consider leaving something to family even where you want most to go to charity, in jurisdictions where family provision claims are possible.

Use a solicitor and get a capacity assessment if you are elderly or unwell.

Avoid the appearance of influence. Do not have a charity representative involved in the making of the will.

Alternatives to a legacy

Giving during your lifetime, which in many jurisdictions attracts tax relief and which allows you to see the effect.

Donations in lieu of flowers at the funeral, which is a common arrangement and which raises meaningful sums.

A donor-advised fund or a foundation, for substantial giving, which allows distribution over time.

Leaving a specified item — a collection, a property — which may suit some organisations and burden others. Ask first.

Choosing where to give

Worth a moment's thought, since the amounts are frequently significant.

Consider what the organisation actually does with money and whether it is effective. Several bodies publish analysis of charity effectiveness, and the differences between organisations working on the same problem are substantial.

Check the organisation is registered and in good standing with the relevant regulator.

Consider whether unrestricted funding, which charities consistently say is most valuable, serves your purpose better than a directed gift.

This is general information, not legal or tax advice. Charitable tax reliefs and family provision rules differ by jurisdiction. Take advice, and name charities precisely with their registration numbers.