Residuary is best: the lessons of the recession for legacy fundraising

by Stephen Tall on June 16, 2010

An article in Third Sector, based on research by Legacy Foresight, illustrates just how closely related is the growth of the economy to the value of legacy donations received by charities:

The figures show that the value of legacy donations fell by 1.2 per cent in the 12 months to March 2010, the smallest year-on-year decline since the start of 2009.

The 42 charities that are members of the legacy monitor research programme consortium received total legacy income of £883m in the year to March 2010. This was £11m down on the same period last year and £30m below the March 2008 peak.

But the latest results are much better than the 3.3 per cent decline in the year to December 2009.

The graph below displays how the UK’s plunge into recession impacted upon legacy giving:

legacy cash gifts

The reason’s obvious enough: the largest legacy gifts are the result of ‘residuary legacies’ – the value of the estate after all other non-charitable obligations are settled – and these are largely determined by the rise and fall of the property market.

The two prime lessons for legacy fundraising are clear:

1) We should be encouraging all donors, no matter what their age, to consider leaving a residuary legacy gift to their favourite charities. Unlike cash gifts, the amount is not eroded by inflation, and will reflect the changing circumstances of the donor (eg, someone whose wealth is run down as a result of long-term personal care) – so it should be the logical choice for most potential legacy donors.

It’s how I’ve provided for the three charities included in my will; each benefits from one-third of my residuary estate. If I die today, they won’t get much; if I die in 20 years, they’ll likely do pretty well; and if I last another 50 years, they’ll do alright, but not quite as well.

It also has the advantage that the value of the gift to the charity is likely to be higher than if the donor includes a specific cash gift – precisely because people will be more confident giving, say, 50% of their residuary estate to a charity (which may be £5,000 or may be £50,000) than they would be specifically naming the higher amount in their will for fear their estate may not be able to pay out such a gift when the time comes.

2) While we should do everything we can to encourage residuary legacy gifts, there is little we can do to influence the value of legacy gifts: ultimately, it will be the prevailing economic market conditions which determine the value of legacy gifts.

Our managers and trustees would doubtless love to know the exact amount of legacy gifts which have been pledged to the charity: there’s comfort to be drawn from such certainty. But if residuary legacy gifts are what we’re targeting – because we know in the long-term they will yield the best results – then it will be impossible to place a value on pledged legacy gifts, as we’ll have no clear idea of the size of the estates.

For sure, we can (and should) ask donors to give their best guess of what their legacy gift will yield; but they may be reluctant, or may simply not know. This is, in my experience, especially true of female legacy donors, who are often the most generous (not least because they’re likely to outlive their husbands).

So, perversely, a measure of our legacy fundraising success may well be that the value of pledged legacy gifts we know about declines rather than increases – because we are encouraging more (high-value) residuary legacy gifts, and fewer (low-value) cash legacy gifts.

The importance of this is borne out by two figures in the Third Sector article:

  • Average value of residual legacy gifts = £52,000
  • Average value of cash legacy gifts = £3,500

Interestingly, the value of cash legacy gifts has actually increased during the recession – which suggests the increasing importance donors are attaching to bequests in their estate planning, and that there is an inevitable lag between an economic downturn when it comes to cash legacy giving.

But the disparity between the two average values of the two most common forms of legacy giving shows very clearly where we should be placing most fundraising effort: in persuading more current donors of the compelling reasons to reflect their own enthusiasm for their chosen charity by making that charity a residuary beneficiary of their will.

It might not show up on our fundraising success KPIs – but it’ll be crucial to the future health of our institutions, and the work they carry out.