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What is a Legacy?
Leaving a legacy means ensuring that your wealth continues to work effectively and make a positive impact on future generations, whether in your family or the wider world.
Legacy is a powerful, and growing, force for philanthropy – literally ‘love of humanity’ –which is the act of helping good causes that benefit others. In 2022, a record-breaking £3.7 billion in legacies was left to charities in England and Wales.1
In 2022, a record-breaking £3.7 billion in legacies was left to charities in England and Wales.1
But your legacy is about more than just the wealth you leave behind: it’s about realising your vision of the good it can do and being remembered in the way that you would wish.
Making a difference needs more than good intentions. It also requires careful planning to ensure that you have chosen causes that meet your values, and that your money is working as hard, and as tax-efficiently, as possible. Preserving and enhancing your wealth is the best way to make your legacy last and make a lasting difference.
The advantages of Donor-Advised Funds (DAFs)
Donor-advised funds (DAFs) are the UK’s most popular vehicle for philanthropy and charitable giving, with total contributions forecast to exceed £1 billion by 2025.2 A DAF is essentially a simple, tax-efficient trust account which allows you to manage and monitor all your charitable giving in one place.
DAFs have several attractions for budding philanthropists in terms of their flexibility, tax-efficiency, and ease of administration.
With a DAF you can give grants to charities anywhere in the world whenever you choose. If you pay tax in the UK, your cash donations are generally eligible for Gift Aid tax relief of 25%. If you pay higher rate tax, you can claim this back via your personal tax return.
You can set up your DAF instantly, incurring no start-up fees and choose to remain anonymous if you prefer. There is no need to create a board of trustees or go through the time-consuming process of audits and annual returns. DAFs also enable you to invest some of your funds so that the charitable pot grows.
Individuals or families can set up a DAF simply by paying money or assets into a DAF fund account. Bear in mind that any contributions made are irrevocable. You can’t take money back out of a DAF at a later date.
Setting up a charitable foundation
Setting up a charitable foundation is a good way for individuals or families to be business-like in their philanthropy.
A charitable foundation, unlike a DAF, must have a board of trustees to oversee and manage it. Typically, a board will comprise at least three trustees who ensure that the founder’s wishes and guidelines are honoured.
You will also need to give your charity a name and create a governing document that determines your purpose, your goals, and your way of conducting business.
The most common structure for a foundation in England and Wales is a CIO (charitable incorporated organisation) with a similar vehicle available in Scotland. It’s akin to limited company status for businesses and it protects trustees from personal liability in issues like insolvency. The downside of this protection is the need to be independently audited and publish an annual report and accounts.
The alternative is to be unincorporated – a little like sole trader or partnership status in business – which means that trustees are personally liable for any debts.
Family foundations are becoming more common in the UK since they allow family members to combine their philanthropic activities, making a greater impact in their chosen causes and in giving back to society.
Becoming a strategic philanthropist
Your legacy as a philanthropist will determine how you are remembered by the people that you help with your wealth. Those are high stakes, so you’ll want to think carefully and strategically about your values and goals.
First, ask yourself what causes really appeal to you and what exactly you want your giving to achieve. You can then map out a route to achieving it.
Remember that what gets measured, gets managed. Giving money to good causes might make you feel better but the gamechanger is knowing that your donations are genuinely making a difference. Putting reliable metrics in place gives you confidence that the plan is working.
Giving money to good causes might make you feel better but the gamechanger is knowing that your donations are genuinely making a difference.
This can be done through independent evaluations and control trials so you may wish to consider donating to organisations that have robust evidence processes in place.
Martin Lewis, founder of Money Saving Expert, has been a philanthropist since selling his business in 2012 for £87 million. He put £10 million into his charitable trust, which has more than doubled since then through investments. Over that period, he has given more than £10 million to good causes, including his Coronavirus Poverty Fund and his Money and Mental Health Policy Institute. Please remember past performance is not necessarily a guide to the future and should not be relied on.
By thinking carefully about his giving philosophy, he has been able to strategically support the good causes that really matter to him.
Planning your legacy strategy
Careful estate planning is vital to ensure that more of your money goes to good causes and less gets taken by the taxman. The value of charitable donations is deducted from your total income for income tax purposes and from your estate for IHT purposes.
If you leave more than 10% of your net estate to charity, your IHT rate is cut from 40% to 36% for the balance of your estate.
Making sure you have a last will and testament in place is important for specifying exactly which charities you have chosen to fund and how much you are giving them. Without a will, intestacy laws will be applied, and your favoured charities will receive nothing.
How we can help
Leaving a legacy is an act of kindness that can benefit others for generations to come. However, ensuring that your wealth is gifted effectively and efficiently requires careful planning and expert advice. With this in place you’ll have peace of mind from knowing that your wishes will be honoured and the causes you care about will reap the full benefit of your generosity.
Please get in touch if you'd like to speak to one of our team today.
1 ThirdSector, Legacies to charity hit record annual high of £3.7bn, https://www.thirdsector.co.uk/legacies-charity-hit-record-annual-high-37bn/fundraising/article/1820270
2 Edwin Coe LLP, Donor Advised Funds and philanthropic giving in the UK, https://www.edwincoe.com/blogs/main/donor-advised-funds-and-philanthropic-giving-in-the-uk/
Important information
The value of your investments can go down as well as up and you may not get back the full amount invested. Your capital is at risk.
Tax treatment is dependent on individual circumstances. This information is provided in good faith and is based upon our understanding of current tax law and HMRC practice, which may be subject to change in the future.
This article does not offer advice and the content and information about potential investments and services are designed for general use, and so cannot be considered personal to your circumstances or your financial position. It is important to obtain professional advice from an accountant or tax specialist before taking any action or making any decisions.
Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.