Charities relying on financial reserves as income dwindles
Expert opinion
Now more than ever it is important for charities to protect their income through legacies left to them in wills.
In their latest figures, the charity legacy consortium, Legacy Foresight, has estimated that legacy income could fall by up to 27 per cent this year due to the impact of the coronavirus. This could mean a significant short-term blow to charities in terms of legacies from wills, which totalled £3.2bn in 2019.
The current research suggests that there are several factors as a result of the coronavirus that are likely to contribute to the fall legacy income this year. These include the impact of falling house values, reduced share prices and lower GDP growth rates, together with the strain on those administrative functions that charities depend upon to receive legacies – such as HMRC, the Probate Registries and the General Register Office, and the courts.
The pressures on these services will mean significant delays in obtaining documents to progress estates being administered. This will therefore result in a slowing down of legacy income being received.
However, the good news is that the fall in legacy income is set to be short lived. Despite the short-term hit, the overall value of legacies left to charities is expected to increase to around £3.8bn over the next 5 years.
What can charities do to navigate through this tricky time and preserve legacy income now?
At this challenging time, it is important to focus on getting cash through the door. This is particularly important for those charities whose income from other sources has ground to an unexpected halt.
Here are a few things charities can do to try to preserve their legacy income.
1. Push forward slow-moving estate administrations
Where administration of an estate has slowed down significantly, find out the reason for the delay. As remote electronic contact is fast becoming the norm, picking up the phone to those people who hold the relevant information may mean you can get to the bottom of the delay quicker.
Ask questions of the executors in charge of the administration of the estate to see whether they can make any interim payments to the beneficiaries. Interim payments can be a good way to secure early payment of your legacy. Executors may be cautious about making interim payments, however if there is no real reason to hold on to the funds, interim payments could be paid out. Of course, it is important that all beneficiaries are treated equally, and that an interim distribution does not leave one party with an unfair fighting fund if there is a dispute on the horizon.
2. Deal with disputes at an early stage
Where possible, early resolution of a dispute is beneficial. It is both cost effective and saves time for all parties, with legacies being received without prolonged delays.
If a dispute has arisen and someone enters a caveat at the Probate Registry to stop the estate being administered, do not be afraid to challenge it. Taking steps to challenge a caveat can be a good way to flush out unsubstantiated claims at an early stage.
Where there is some merit in a potential claim against the estate, various methods of alternative dispute resolution, such as mediations, be implemented at all stages of a dispute. This includes before a matter is taken to court. Settling disputes early is likely to save costs in the long run and help bring in legacy income sooner.
It is also worth considering that, where there is a probate dispute ongoing, it is a good idea to take steps to protect the funds in the estate at an early stage to avoid the risk of the funds being spent. This can be done by moving funds into a solicitor’s account or pay funds into court pending resolution of the matter, seeking a freezing order over the assets or making an application for the removal of the executor and appointing an independent or professional executor or trustee in their place.
3. Adapt your approach
If consistent delays in receiving legacies seems to be becoming the norm, consider how you could change your approach to speed things up. Perhaps you need to take a harder line where administration is slow without good reason, change the way you communicate with your advisers or consider different options for settling disputes at an earlier stage.
Remember, where things are not smooth sailing, it is best to take independent advice from a solicitor as early as possible. This is particularly important at the point that you are made aware of a potential dispute. This can help to resolve disputes quickly and save costs further down the line.
How should charities consider effectively spending their legacies at this time?
Now more than ever it is important for charities to continue fundraising, despite the closures to high street shops and restrictions on planned events.
The coronavirus has presented us all with significant challenges and has affected everyone’s lives in some way. This shared experience gives charities a good reason to reach out to valued donors and stay in contact. A reminder that you are there and are thinking of them is likely to be particularly appreciated at this time.
As we know, legacies left in wills are a huge part of most charity’s income. Spending a percentage of the legacies received on reaching out to donors to talk to them about making wills and leaving legacies may prove to increase this income.
It may also be a good time to consider whether you can introduce schemes to incentivise donors, such as providing donors with the comfort of their pets being looked after when they are gone. Where those schemes are already in place, it is particularly important to ensure they can continue to run safely and some of the income available could be used for that purpose.
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