By in Advice

Accounting for legacies

A common misconception about legacy administration is that it only involves ‘banking and thanking’ – receiving a cheque when a supporter has bequeathed a gift in their will, and saying thank you.

In reality the process of managing legacy income is more complex, requiring larger charities to employ permanent teams of trained experts who forecast and collect funds.

The challenges facing charities

Worth an estimated £2bn to the charity sector each year, the first time a charity usually hears about a donation is through a letter from an executor. To avoid missing notifications, many organisations also subscribe to the Smee & Ford legacy notifications service, which trawls 5,000 wills a week.

RNIB head of legacies Eifron Hopper says from the outset a charity should prepare for a bumpy ride. “The vagaries of asset prices, potential challenges to the will and a host of other matters cloud the issue,” he suggests. These include poorly-drafted wills, challenges, mistakes made by executors or solicitors, or difficulties selling assets. It could take 18 months or longer to receive any money.

Hopper recommends when charities confirm receipt of a notification, they include a standard factsheet explaining how they work and the legal constraints affecting charities that differ from private beneficiaries.

Lay executors – usually family members with no expertise in the process – are increasingly handling wills in the UK. RSPCA head of legacy department Jenny Franzmann says it’s important to provide guidance and support in these cases over the phone or face-to-face. She also recommends charities communicate with other charity co-beneficiaries. Smaller charities without in-house legacy teams can seek advice from specialist solicitors or consultant legacy administrators.

Franzmann advises charities to differentiate between pecuniary gifts, which are fixed amounts usually paid out within a year, and residual gifts, which are a share of an estate. Such pay-outs can take longer. Franzmann says monitoring how long it takes to collect monies helps charities predict when funds become available. “Make sure you review files regularly and do ask for an interim payment,” she advises. “If you know the assets in the estate are largely stuck in banks, buildings societies, stocks or shares, you can write to the executor and ask.”

If an interim payment is impossible, charities can apply for advance financing from the Legacy Funding Corporation (LFC). It offers charities 70% of their expected legacy income when prolonged cases cause cash-flow problems. Director Peter Collins says the scheme, which he believes is a UK first, will benefit charities with an income of up to £60m. LFC draws its funds from banks and is investigating whether pension schemes could also fund forward-legacy payments.

Gather data for a broader perspective

When it comes to forecasting legacy income, RNLI head of fundraising strategy Tim Willett says charities must gather data. His organisation has about 15 years of legacy collection information, meaning it can predict short and long-term funding. He says the most important measures to record are the number of legacy notifications, their value, and how long they took to process.

He also advises charities to consider the broader economic climate. “We look at the macro-economic situation, such as the housing market, shares, what’s happening with long-term care costs, how much are people are having to fund children or elderly parents, and the death rate,” says Willett.

Taking the right approach

Asking donors to tell a charity they plan to leave a legacy is another way to predict income, but Willett says this must be done “in a very gentle way”. He explains that RNLI promotes legacy income by mentioning it subtly in publicity messaging. One statistic often quoted is that six out of ten lifeboats are launched with legacy funding.

Collecting legacies can go wrong if an executor fails to pay or makes a mistake. But RNLI legacy income manager Guy Rose says charities should only resort to court proceedings as a last resort. “If it’s a professional executor, they can escalate their complaint through that firm’s grievance procedure,” he suggests. “It’s not just about the money – there are also PR risks. It never looks good for a charity to look keen on taking court proceedings.”

Rose also advises charities to say thank you in an appropriate way. “At the very first opportunity you have, express sympathy and condolences,” he says.

Peter Collins is CEO of Legacy Funding Corporation Ltd and is a specialist in designing insurance programmes for organisations operating within the  “Not for Profit “sector. He works closely with a number of financial institutions  developing products that can generate income for the sector and he also designed the first line slip in the UK for Trustee liability Insurance.

by Gabriella Jówiak at Slack Communications on behalf of Peter Collins, Director at LFC

Tel: 08448 480 380