Learning from the US approach to legacy fundraising

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Learning from the US approach to legacy fundraising

Would a more straight-talking approach to legacy communication clear the way for new legislation? Hannah Gannagé-Stewart looks Stateside for inspiration


Death and taxes, as the ancient saying goes, are the only two things in life that you can guarantee. They’re also the only certainty in a conversation about legacy giving. Forecasting trends in legacy giving, or how many pledges will come to fruition, is a minefield of uncertainty. But you can be sure that where there’s a will there’s a tax incentive and where there’s a legacy – well, I’m afraid that’s where death comes in.

In the UK, legacies can be separated into two categories: a pecuniary legacy is a fixed sum of money and/or specific possessions, A residuary legacy is a percentage of the net value of the estate. The latter tends to be the one that is worth more to charities and is therefore more sought after. As with all good things of course, it is also harder to secure.


State of play

The latest Smee & Ford data available on the number of bequests in 2010 identifies that there were just over 73,000 absolute bequests (legacies actually received by charities). Sixty-five per cent of these where pecuniary, meaning just over a third were the highly prized residuary legacies. It is not surprising that a majority prefer to set aside a fixed sum or specific possessions when making provision for charity in their wills. It’s a more tangible commitment than a proportion of your total value on death.

Perhaps a less obvious explanation is that a pecuniary legacy is fairly simple. For arguments sake, if a will pledges £100 to charity today then, on the legator’s death, £100 will be handed over, and any tax incentives that exist on that sum will also be relatively straightforward. In the case of a residuary legacy however, everything is rather less set in stone. The legal and tax implications are likely to require greater explanation, and advice comes at a cost.

This is where knowing your donor comes in. Familiarity with the legacy models available will enable you to talk with as much authority about what the benefits of leaving a legacy are for them, as you can about the benefits for your organisation. And it is this conversation that many in the sector are concerned is lacking. In the UK at least, talk of death and money is still taboo.

“It’s all about making our members and the sector as a whole, noisier about legacies”, says Remember a Charity’s director, Rob Cope. His organisation has been promoting legacy giving for the past ten years through a multi-facetted advertising and marketing campaign and, more recently, through its annual Remember A Charity week.

The campaign’s latest direction is to get legal professionals and will writers involved in the conversation about legacies. “At present less than a third of will writers and solicitors prompt their clients about making a charitable gift”, says Cope. “We want to bring them on board to play a fundamental role in educating clients. It’s about getting them to consider something they probably would like to do but may not have thought of.”

Jennifer Chambers, partner at Maurice Turner Gardner, agrees this is an issue. “Certainly historically, advisors are quite reactive,” she says“Their clients will say, ‘we want to do this’ and they act on those instructions but wouldn’t necessarily suggest charitable giving. As with other stakeholders in the process, a feeling of awkwardness seems to be the root of their reticence.

Chambers does make it clear that not all firms are the same. Her firm does mention legacies as an option in its will questionnaires. It is all part of the tax planning that goes into will writing, and as she goes on to explain, that is easier in a firm, like hers, where the estate planning and charities divisions work closely together.

Integrating the relevant stakeholders in any multi-organisational process is easier said than done, but it is an issue we frequently return to with legacies. As Cope makes clear in a separate point, just building awareness of legacy giving beyond the fundraising department of a charity can be a challenge. For example, in small charities, where one person may be responsible for more than one job, it can be difficult for to prioritise legacy fundraising. Alternatively, in large charities you risk legacies always been seen as someone else’s job by stakeholders outside of the legacy department. Eifron Hopper discusses these issues in more detail on page 12 of this issue.


Across the pond

The US is often cited as a comparative example of how legacy fundraising could be approached differently. Americans are more comfortable asking for donations across the board, although opinion is divided on whether they are better at it. Andrew Watt, chief executive of the Association of Fundraising Professionals in the US and former deputy chief executive at the Institute of Fundraising in the UK, is well placed to identify the differences between the two countries.

He explains that the US approaches its fundraising activities with a focus on ‘planned giving’. As such, a range of products are available to the American donor, the likes of which we are yet to see this side of the pond. “Planned-giving professionals will discuss the full range of options as part of a family’s financial planning, which is virtually unheard of in the UK,” Watt explains.

It is arguable that Remember A Charity’s work on the integration of legal advisors into the legacy process could do more than simply make it easier for donors to hear about the opportunity to give. Several agencies within the sector have been exploring the possibility of adopting elements of the US system over here. A greater emphasis on the importance of the roles of tax and legal advisors makes a move in that direction appear all the more feasible.

The Charities Aid Foundation (CAF) has been working with legal and tax experts in the UK to find a tax effective way for donors to leave legacies during their lifetime. ‘Lifetime legacies’ as they have come to be known, are loosely based on American Charitable Remainder Trusts (CRTs). The tax-efficient system allows donors to transfer assets to the trust during their lifetime. The trust makes annual payments to one or more beneficiaries for the rest of the donor’s life, but passes irrevocably to charity on their death. Unlike standard legacies, charities can count on the legacy income from the moment the trust is set up, making borrowing and financial planning easier.

Hannah Terrey is head of policy and public affairs at CAF. “The US experience suggests that this type of giving appeals to donors, as they are able to engage with the charity and see the impact of their donation during their lifetime, whilst at the same time retaining some financial security,” she explains.

According to Watt, “The average size of a CRT is around $3-400,000 and the majority of people who make one gift of this size go on to make at least one more”.

He is keen to emphasis that the majority of these gifts come from the “middling wealthy, not mega rich” and for those that can’t afford a trust of their own, there are pooled investment funds, which are offered by all major brokers as an option. So what’s to stop us doing something similar over here?

The government has confirmed it is aware of an interest within the sector around this form of giving. However, “any form of tax incentive to encourage lifetime legacies would be very complex and a significant undertaking” according to a Treasury spokesperson. Terrey and Chambers both disagree. They believe that a simple model for lifetime legacies could be introduced to good effect without a complex raft of legislation.

“There would need to be legislation to enable the donor to receive a tax relief on the gift and retain an interest in the asset,” says Terrey. “However it would be possible to design a very simple, ‘vanilla’ trust model to minimise any complexities. It might even be possible to initially trial this with a particular sector.”

Chambers believes that tax incentives announced by the government, in the last budget and the recent White Paper on giving, are a step in the right direction but hopes that the issue of lifetime legacies remains high on the agenda for further consideration.

A statement from Justine Greening, economic secretary to the Treasury, made no direct reference to legacy giving, but said: “The philanthropy package at this year’s Budget represented the most radical and generous reforms to charitable giving for more than 20 years. The plans set out in the Giving White Paper further demonstrate the government’s commitment to encouraging people from all walks of life to donate.” However, at the time of writing, HMRC has just released a consultation inviting charities to respond to a suggested change in legislation. It proposes that inheritance tax rate would be reduced by 10 per cent when a legacy of 10 per cent or more of the net estate is left to charity.[1]


Room for debate 

Government isn’t entirely alone in its delay to run with lifetime legacies though. Richard Radcliffe is a legacy fundraising consultant at legacy solutions company, Smee & Ford. He remains cynical about lifetime legacies as the currently notional beast that they are but thinks that if the idea was better communicated, and the proposed tax relief was available, they would be a valuable asset to the sector. “It would be useful, but I think they will mainly be of interest to high-net-worth-individuals. If a major donor department had some really good capital projects then people might begin thinking about a charitable remainder trust and decide to give all or some of the income to sustain the project”, he says.

Radcliffe goes on to explain that recent trends in legacy giving show a move away from leaving money to large national charities. “There is increasing donor cynicism that some of the big charities have too much money. People are looking for something more local and tangible because they think they’ll make a bigger difference,” he explains. Radcliffe himself draws no comparison between this trend and the potential for lifetime legacies, but could it be that a lifetime legacy would be an appealing option for this new breed of donor who seeks a lasting impact on a community level?

The US experience shows that CRTs are frequently left to organisations that have a resonance in the community – for example, universities, schools and cultural organisations. CRTs are just one form of a number of similar trusts that fall under the planned giving category that Watt described earlier. As he explained, the way legacy giving is integrated in to American culture allows many more people to take up the opportunity to give. But it is also arguable that there is more cultural motivation to do so. The US has a more religiously motivated culture than our own, which impacts on the way people give and to which organisations. On top of that, there is not the welfare state provision that we have in this country, meaning services provided by charities are more important to the general population.

Just as a one-size-fits-all approach to legacy giving would not work in the comparative case of the US and the UK, so it will not work within our existing legacy structure. So until innovation inspired by other systems can be applied to our unique market, it is important to make the most of all the incentives that are available now. A coherent legacy strategy will ensure that your legacy officers are as clued up on the tax and legal implications of legacy giving, as legal advisors need to be on the importance of communicating about legacies.

It is not advisable for a charity to be seen to have too much influence over the drawing up of an individual’s will, as this can lead to speculation of coercion and challenges in the courts during probate. The best approach is one that confidently presents the available options for legacy giving and refers legator’s to the relevant professionals. This makes it all the more important that relationships with those professionals exist. Invest in relationships with all stakeholders so that everyone is clear about the options available and how to make the most of them for all involved.



  1. The consultation can be found at: www.hmrc.gov.uk/consultations/index.htm and runs until 31 August 2011.


This article first appeared in The Fundraiser magazine, Issue 6, June 2011

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