How Does The ESG Agenda Align With Charitable Donations And Trusts?

• Published date: 10 October 2022
• Subject Matter: Corporate/Commercial Law, Environment, Tax, Family and Matrimonial, Charities & Non-Profits , Environmental Law, Inheritance Tax, Trusts, Wills/ Intestacy/ Estate Planning
• Law Firm: Weightmans
• Author: Ms Kirsten Wilkins

In the UK, individuals and charities gave more than '250 million to environmental causes in 2020 (double the rate in 2016).

In 2021, the Government published its 10-point plan to bring the UK to net zero carbon emissions by 2050. Pledges have been made towards restoring the environment and purifying our industrial mechanisms. For big business and individuals alike, one thing is for certain; we must all do our part to reach this commitment.

Charitable legacies and donations

We have all taken 'green' steps, such as driving an electric car, considering cycle to work schemes, working in paperless offices, and committing to reduce waste. Many are now looking to have a hands-on approach to achieving their own 'green' and 'sustainable' agendas through legacies once they pass away.

Legacy Foresight Today have predicted the average annual value of charity legacies in wills will increase by 25%, up to '4.2 billion between 2022- 2026. Many charities are dependent on will legacies, and these posthumous donations allow individuals to make a significant impact, beyond their affordability during lifetime.

In terms of individual tax efficiency, not only are charitable legacies exempt from inheritance tax, but clients should also be advised on the benefit of charitable relief; that is, where 10% of the net estate is left to charitable legacies, the remaining taxable estate has the benefit of a reduced rate of inheritance tax at 36%.

As with all inheritance tax planning, the importance of bespoke advice cannot be understanded. The drafting of these charitable legacy clauses is paramount to maximise efficiency for both the charitable and non-charitable beneficiaries.

Charitable objects- environmental purposes and sustainability

There appears to be positive news regarding environmental donations. In the UK, individuals and charities gave more than '250 million to environmental causes in 2020 (double the rate in 2016).

For the majority, donations to established charities will be the most efficient course of action. However, there has also been an increase in the number of grant-making charitable trusts. It seems individuals are keener than ever to take direct action in tackling charitable concerns. While the settlors of many trusts have sought to focus on environmental factors, other have sought to take a more widespread approach, focusing on 'sustainability'.

Under the Charities Act 2011 (soon be superseded by the Charities Act 2022), there are 13 defined charitable...