Smaller charities should focus on legacy income

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According to the latest data by legacy information company Smee & Ford, charitable legacies rose by 8% in 2014 to £2.208 billion, compared to £2.044 billion in 2013. Crucially, the average proportion of estates left to charities also grew – up from 15.8% in 2013 to 16.65% in 2014.

These trends, of course, are extremely positive for charities and they go some way to demonstrate the potential of legacies as a revenue stream for charities of all sizes. Smee & Ford’s data shows that 112,937 donations were left by almost 35,000 donors in 2014 and the number of charities benefiting from donations rose by 5% to 2,257.

To understand some of the reasons behind this continued growth of charitable legacies, we have to go back to 2012 and the inheritance tax relief introduced by the Coalition Government.

As part of David Cameron’s Big Society ideology, since 6 April 2012 executors can pay a reduced rate of inheritance tax – 36% instead of 40% – if 10% or more of the estate is left to a charity. It was a move specifically designed to encourage more people to leave money to charities in their will and it seems to have had the desired effect.

At the time, the change was estimated to cost the Government £25 million in 2012/13, £75 million in 2013/14 and £125 million in 2014/15. It was based on the assumption that charities will receive an extra £300 million over three years as a result of the new rules.

It is very difficult of course to attribute specific growth to any individual reason, but charitable legacies have undoubtedly soared over the same period. At more than £2.2 billion, they represent the largest single source of voluntary income for the UK’s charities. According to Legacy Foresight, charitable legacies have quadrupled over the past 25 years from just £0460 million in 1988.

Securing legacies

Of course, for any charity to benefit from this growth, they must have the correct processes, systems and infrastructure in place. Smee & Ford reports that just over 2,200 charities benefited from legacies in 2014, but this is only a fraction of the 165,000 registered charities in England and Wales.

Clearly the larger charities do well from legacies, with bigger marketing budgets, greater resource and nationwide recognition. It is not an exaggeration to say that national charities currently monopolise legacies. You only have to Google “charity legacy”, for example, to find pay-per-click advertising from Macmillan, Clic Sargent and Save the Children at the top of the page, some even offering help and advice with will writing.

Regional charities won’t have this same clout, of course, but there is still plenty that can be done to encourage legacy donations from your supporters and get a bigger slice of the legacy pie.

If you don’t already have one in place, a comprehensive legacy policy is a must. There is some excellent guidance on the Gov.UK website, including links to the Institute of Fundraising which covers ethical considerations, how to communicate with the public and special groups for sharing ideas.

Above all else, make use of all marketing channels. Make sure legacies are promoted on your website, in newsletters and any other written communication, because often supporters won’t even be aware of it – let alone the potential tax benefits introduced in 2012.

The other advice I would offer is to stay close to your supporters. In July last year, we saw a landmark ruling in favour of Heather Illot, who contested her mother’s will after she left her £486,000 estate to the RSPCA, RSPB and Blue Cross when she died in 2004.

According to the BBC’s report of the case, the Court of Appeal ruled Mrs Illot should receive a third of the estate because her mother had not left “reasonable provision” for her in her will. In reality, Mrs Illot’s lawyers also used the fact that her mother had no connection to the charities benefiting under the will as a strong background to her appeal.

In the aftermath of this case, individuals seeking to disinherit their children in favour of charities were advised to provide a detailed explanation to supplement their will which explains exactly why they are excluding their children – and, more pertinently, to explain their connection with the charities they wish to bequeath.

For any such charity, my advice is to do everything you can to build relationships with your key supporters so you are prepared for the worst in case of a challenge from disappointed family members. Keep internal records of all contact and amounts donated with benefactors up to date, because unfortunately they may be needed as evidence if a will is challenged in this way.

Controversy and ethics

Of course, legacies can be an extremely sensitive subject. As the Government’s own website states, “you may have to deal with difficult situations such as talking to people about what happens after they die, or talking to family members after someone has died. You, your trustees and staff should be sensitive to all involved.” You may also need to take measures to recover a legacy which has been left to your charity.

We are all aware of the controversy over charities “chasing” bereaved relatives for gifts. The Times newspaper raised the issue most recently in December 2015 with its front page splash accusing Age UK, the RSPCA and WWF-UK of “trawling” through public records of wills so they can “chase” bereaved relatives.

There are ethics and good fundraising practice to uphold, but the fact remains that charities of all sizes rely on such legacy incomes to survive. To quote a joint statement from the Institute of Fundraising and Remember a Charity in response to the Times’ investigation, “charities have a legal duty to manage legacy gifts and ensure that the wishes of the donor are realised”. Fortunately, most bereaved families still want to realise the wishes of their loved ones.

It is likely that this kind of controversy has caused some trepidation amongst smaller, regional charities when it comes to legacies. Even those which are actively promoting the idea are unlikely to have the time, resource or money to trawl through public records of wills in the way that national charities do in the hope that money has been left to them.

However, it should not put any charity off. With a £2 billion pot available from almost 35,000 charity supporters, legacies continue to be an extremely valuable source of income for charities. And with evidence to show that the legacy pot is growing – together with the legacies themselves as a percentage of estate – the opportunities will continue to grow.

Don’t be afraid to engage with your supporters in a sensitive and caring manner – it may even reduce their family’s inheritance tax liabilities – a “win-win” situation.

Please get in touch with Nigel Shaw if  you would like any advice on this subject.