The risks and opportunities of legacy funding

02 November 2020

Legacy funding is pivotal to the UK not for profit sector, accounting for around a third of a UK charity’s voluntary income. In recent years, the number of gifts left to charities within a Will has climbed considerably, increasing by 50% over the last 10 years as more and more people choose to support a cause close to their heart after they’ve gone.

In an increasingly volatile financial environment, charities large and small need strong business plans that can respond to the ups and downs in income. Averting cash flow crises depends on robust funding income streams that enable the charity to support its cause and continue to execute on its purpose.

For many, legacy funding is an opportunity to create this sustainability – in fact, according to the recent report, Top 100 Fundraising Charities Spotlight, some of the fastest growing charities over the last five years have managed to increase income through legacies. As an example, UK health and welfare charity Leonard Cheshire saw a 40% growth in income through legacies and expanding trust support for its international work. However, as lucrative as this form of funding can be, it isn’t an avenue that is free of risk.

Raising funds through Wills

By its very nature, legacy funding is a sensitive issue. It’s one thing to benefit from gifts left in Wills, it’s another to approach the public to encourage the giving of legacies.

The challenge is twofold: on one hand, charities must convince their supporters to write a Will in the first place. Despite the assets they accumulate throughout their lifetime, most people put this off until it becomes a necessity – and that’s understandable, to a certain extent. Nobody takes pleasure in planning for the worst, and most of us would rather not think about it at all. Then, there is the secondary challenge of convincing supporters to leave part of their estate to the charity in question.

Nevertheless, incorporating legacies into your fundraising strategy is essential in diversifying your income – the solution is to make it as easy as possible for people to leave a legacy and approach the situation delicately. Your charity may wish to help out with the cost of a Will as part of your fundraising plan to encourage donations. It’s important to note, however, that the Charity Commission recommends no-one connected with your charity helps to prepare a Will that contains a donation for your charity. This includes acting as a witness to the will. This will reduce the likelihood of a legal challenge.

The potential of legacy giving

In a dynamic organisation, legacies can be highly effective in creating reliable financial reserves, allowing for investment in service development. With an average gift amount of just over £200,000, legacies are undoubtably a worthwhile form of fundraising. And, with the rapid growth in the number of legacies given set to continue rising with a generation of Baby Boomers leaving gifts in their Wills, the value of this income source isn’t about to drop any time soon.

According to Legacy Foresight, the number of legacy givers could double by 2050. Further, since property prices continue to rise (usually the primary asset of an estate), the amount left in Wills to charitable organisations is only set to increase.

The unpredictability of legacies

If your organisation is fairly static in nature and lacks the in-house knowledge to run an effective legacy program, the challenges with this type of funding begin to grow.  At present, legacy funding as an income stream is difficult to forecast – charities know an estimate of how much they can expect, but they don’t know for certain when the funds will be received. This makes reliance on legacies a perilous path for smaller third sector organisations.

With the immense pressure on charities to stay afloat amidst economic downturn caused by the pandemic, plans were recently proposed to accelerate access to legacy funds during donors’ lifetime to help unlock new income for charities earlier. Further investigation into the feasibility of the plan is to be conducted, but the aim would be to help voluntary sector organisations get access to money earlier and gain the ability to forecast legacy income more easily.

When legacies lead to legal disputes

Whilst a record £3 billion worth of legacy funding was raised in 2019, the number of disputes over charitable gifts in wills has also risen alongside it. Should a person choose to donate to your charity over their own family, there’s a good chance the family will seek to challenge this decision and ask why it was made. In some cases, they may argue that their relative was not of sound mind when making the Will. This puts charities in a precarious position – what could potentially be a lifeline to many organisations facing cash flow troubles could result in a legal minefield.

The reputational risk and the cost to the charity of defending a claim are both red flags that should be avoided where at all possible. If anything, the recent rise in legal challenges to legacies serves to shine a light on the importance of clear communication on behalf of the charity – when in doubt, legal advice should be sought to ensure the necessary safeguards are put in place to reduce the risk of disputes.

Encouraging legacy gifts through good governance

The potential of legacy funding and the growing prevalence of gifts to charitable organisations in Wills should not be ignored. Those who champion legacy funding will be those who thrive in a crisis, but navigating this delicate area can understandably be difficult. As a priority, charities should seek to inspire confidence as a means of encouraging legacy giving through clear messaging and an unwavering commitment to delivering on their purpose. If your charity is eager to incorporate legacy funding as a source of income, get in touch with our charity law specialists for dedicated advice on good governance and best practice to minimise risk of legal challenges.

 

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