Securing legacy income for charities

Legacy giving is a sensitive issue, with some people very much against the idea of individuals being encouraged to leave money to a charity on their death. It is therefore easy to see why some charities shy away from such potential income streams, instead focusing their fundraising efforts on securing lifetime gifts from their supporters.

However, the potential to bolster income to the charity sector via such gifts is significant. According to Smee & Ford[1], charitable income from legacies has increased by 39% over the last five years. Led by Cancer Research (£177.8m), RNLI (£118.4m) and the British Heart Foundation (£67m), legacy income is predicted to be worth as much as £2 billion a year to UK charities.

This upward trend is, of course, extremely positive for charities and goes some way to show the potential of this largely untapped source of income.

Why is legacy income growing?

Perhaps the most significant reason for the rise in legacy giving is the favourable inheritance tax (IHT) treatment now available. In 2012 the Government introduced a reduced rate of IHT (36%) to those estates in which 10% or more of the estate’s assets were left to charitable organisations. This was introduced to encourage individuals to leave gifts on death – and it appears to have worked. Many have bought into the idea of leaving a gift in their will in return for an IHT saving. Additionally, with larger charities now actively marketing to encourage such gifts, public awareness (and acceptance) of leaving a gift in a will has increased.

Securing legacies

For a charity to secure and retain such legacies (and thus benefit from this market growth), some element of public encouragement is necessary. Many larger charities are now dedicating significant amounts of their marketing budgets and fundraising resources to such tasks.

However, a large marketing budget is not always necessary. Reference to the potential tax savings of such gifts can be incorporated into any form of communication with a charity’s supporters, from website and social media to newsletters or even simply talking to supporters. Charities should not be discouraged from doing so simply because the subject in question is one's death.

Such communications should always be approached sensitively, and when marketing to and communicating with supporters, good fundraising practices and ethics need to be applied at all times.

Protecting legacy income

If a charity invests time, money and effort into securing legacy gifts, those gifts need to be protected from challenge post-death. The vast majority of families follow their loved ones’ last wishes on death if they decide to leave a gift to a charity in their will, but not always.

The manner in which an individual is encouraged to leave a gift to a charity is one potential route to a challenge. Indeed, a charity's reputation is of paramount importance, and it can be easily tarnished by stories of overzealous marketing or chasing gifts after death in an aggressive way. To avoid this, good fundraising practices and open communication with potential donors should be a charity's starting point.

However, in our increasingly litigious society, other legal challenges post-death are on the up, including claims that the individual did not have capacity to make a will and those for reasonable financial provision from an estate.

If a charity has been nominated as a main beneficiary of an estate, or left a significant gift in a will, it could become embroiled in a legal dispute. In the long-running Illot v Mitson, an estranged daughter was unhappy at her mother leaving her £486,000 estate to a number of charities, including the Blue Cross, RSPCA and RSPB. She asked the court to award her reasonable financial provision from the estate, but the charities decided to defend their legacies. This prompted a long and costly court process which only recently culminated in favour of the charities.

Before deciding whether to defend a legacy, charities need to carefully consider the amount of money/assets involved, the resources required if solicitors are instructed and the likelihood of any reputational damage.

But they should take comfort from Illot v Mitson, as the Supreme Court recognised the importance of legacy income. The case also sent a clear message that an individual's wish to leave their estate to a charity should not be disregarded and that family ties should not take precedence over gifts to charities.

So, what can a charity do to minimise the risk of such a legal challenge? Sadly there is no easy answer. There will always be people willing to challenge matters, and an individual cannot preclude someone’s right to do so via their will. However, the following should be considered:

  • A charity should encourage any supporter wishing to leave a legacy to speak to members of their family about their intentions and their final wishes. This should remove the element of surprise after death, and may mitigate the chances of a challenge.
  • A charity should keep clear records of all contact with supporters and the amounts donated. It should record any guidance given to a supporter about leaving a post-death gift, and that benefactor’s wishes. Such notes and records can be used by a charity to evidence the benefactor's intentions in the event of a challenge post-death.
  • It is important that any individual wishing to leave a legacy to a charity has a will which safeguards those wishes – something a charity should highlight to the individual. While it is not essential to have a professionally drafted will, a solicitor will be best-placed to record that individual's wishes, assess their capacity to make a will and keep clear written notes.
  • Post-death, a charity should deal sensitively with the process of recovering any legacies, and have appropriately qualified staff in place to manage legacy administration.

[1] Smee & Ford Legacy Trends: 2017 Update

A guide to wills for family clients A

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