At Cervello, we’re fortunate to work with a wide range of clients who we’ve worked hand in hand with to help them understand what financial independence means to them and work out how close they are to this aspiration.
We’re also lucky enough to work with a decent number of clients who have achieved financial independence. However my experience tells me that something happens when we know we’re going to be financially Ok.
It results in a change of perspective. A look at how to help the people we love and like. A focus on not only our financial needs but those of our families.
However, we also work with a decent number of people who want to have a positive impact on the world. I suppose when you’re a business with a philosophy of “doing well and doing good” at its core, you’re going to end up working with clients who are aligned to this too.
So, often, what happens is we have a conversation about how charitable donations fit into a financial plan and in this article I want to share three tips, if you’re considering this as an option, that you probably should be aware of.
Tip 1 – Why making a charitable donation can reduce your inheritance tax bill
If you make a charitable donation whilst you’re alive, it’s immediately removed from your estate for the purposes of inheritance tax and is a good way for you to see the potential positive impact of your donation whilst you’re still around.
However you can also consider including a charitable donation in your will. In fact if you donate 10% of your net estate to charity it also reduces the rate you pay in inheritance tax from 40% to 36%, so it’s worth considering.
However there are a couple of factors you want to be aware of…
Firstly, you’ve got the option to either specify in the will an amount or a ‘residuary gift’ which is effectively a percentage of what’s left after all expenses, debts and legacies are settled.
There’s two factors I’d suggest you consider here. Firstly, communication is key here. You might want to communicate your intention to make a charitable donation with your loved ones, explaining the reasons why. However the other important thing is to be as clear as you can if and when you making the charitable donation in your will.
The last thing you or your family want or need is ambiguity which could result in legal disputes. So my recommendation is to ensure you’re being as clear as possible in your will on what you actually want.
Tip 2 – Getting specialist help to gift to causes you believe in
One of the interesting conversations I often have when considering charitable donations is the impact any particular donation can make. Often what puts people off is they want to make sure as much of any financial donation made is making a positive impact on the world.
Interestingly, we’ve worked with clients in the past to support them with this. As part of our ‘inner circle’ we’ve access to philanthropic advisers who can take the time to understand the positive impact you’d like any donation you’re thinking about to make in the world and research the charities which help you do this most effectively.
Tip 3 – Understand there’s more options than just a direct gift to the charity of your choice.
There’s often a misunderstanding that once you’ve made a donation to a charity it’s up to the charity to distribute the funds how they see fit.
However If you want to make sure any charitable donation you make goes directly to the positive impact you want to make in the world, you may want to consider a donor advised fund. This allows you to have a say on how the money is spent including the projects you’d actively want to fund.
There’s other options available but the point I wanted to make here is the fact that, whilst there will be minimum contribution amounts depending on your charity of choice when it comes to a donor advised fund, a charitable donation where you’ve got control might be an option worth considering.
I want to make sure that, as your financial planner, we’re supporting you in any way we can. Therefore if you’d like to have a conversation about whether considering a charitable donation should be part of your financial plan don’t hesitate to give us a call.