Where there’s a will

How to make the most of legacies, by Alison Talbot and Adrian Pashley

With levels of legacy income continuing to rise, many more charities are identifying gifts in wills as a potentially lucrative source of funding and are considering or embarking upon extensive legacy marketing campaigns. The value of gifts made in wills can vary widely from one will to the next, ranging from a small pecuniary (cash) legacy to gifts of property or share portfolios or even a gift to the charity of a percentage of the residuary (overall) estate.

Some independent schools already commit significant resources to the marketing of legacies as part of their development function. However, it is essential that, as part of the process, appropriate systems are put in place to ensure that the benefits of those legacies are received in full, once a donor has passed away. Otherwise, part of the expenditure on that marketing is effectively wasted.

Collect in full
Once a donor has died, there are many common problems that can arise during the administration of an estate which may lead to a school receiving less than its full entitlement. Without sufficient checks and balances, these can lead to an erosion of a notable slice of legacy income. The difficulties can be many and varied, and, unfortunately, they are not confined to non-professional executors.

At one end of the scale, a mistake can be as simple as a mathematical error in the estate accounts, at the other end, an executor may completely fail to distribute the funds of an estate. Other examples include incorrect interpretation or implementation of a will, failure to correctly use the availability of charity exemptions from inheritance tax relief and capital gains tax, failure to provide income tax deduction certificates, or the over-zealous charging of professional fees where the executor feels justified in adding a premium because the fees are not being met by an individual family member. Whatever the nature of the problem, the loss to a school can be significant.

There is no doubt that a heavy-handed approach to legacy collection has, on occasions in the past, led to adverse publicity which has reflected on the charity sector as a whole. Many governors and members of the senior management team may therefore feel an understandable reluctance to adopt a policy of actively collecting legacies. However, as a general rule, most charities have found that, carefully managed, the relationship with the executor or the professional advisors can be preserved and the full entitlement collected.

A legacy management system need not be expensive nor require large numbers of legacy staff, although there is no doubt that the training and/or recruitment of staff to deal with legacies will usually pay for itself within a short period of time.

There are many reasons why a legacy management process can be important:

Financial
• as much as 25 to 30 per cent can be added to a school's legacy income by implementing a comprehensive legacy management programme or by employing a full or part-time legacy manager; and

• an increasing number of individuals are opting to administer estates without engaging professional services, often failing to appreciate the additional legal and fiscal requirements when dealing with gifts to charities. As part of a legacy management process, an employee can be given specific training to identify gaps in information provided by executors and alert lay executors to potential pitfalls.

Risk
• governors may breach their general duty as charity trustees to preserve the school's assets if they do not carry out basic checks to ensure that a full entitlement has been received; and

• a reluctance to challenge an executor where there has been a clear mistake or failure in the administration of an estate may make the school look weak and leave it open to further breaches.

Public relations
• where a donor has chosen a school to receive a benefit under their will, family and friends of the deceased may well expect the school to ensure that those wishes are carried out;

• a school demonstrating its ability to effectively collect legacies is more likely to be seen as a commercial entity able to protect its funds, which may in turn attract further funding; and

• there is an opportunity to demonstrate the school's sensitive handling of legacies and to develop good relationships with potential donors of the future.

So, how do schools go about making the most of legacy income? The days of "thanking and banking" a legacy cheque are almost certainly over. There are a number of strong reasons why governors and development officers should be reviewing their legacy processes and identifying opportunities to maximise the level of income from legacies. For a school with a legacy income of up to £250,000, a simple training programme for development officers may be all that is required. For schools with larger incomes, a more detailed training programme, employing one or more dedicated staff to deal with legacy administration and implementing a formal legacy management system may be more appropriate.

Alison Talbot, heads the firm's Charity Legacy team, and Adrian Pashley is a senior solicitor in the Charities and Education team of Blake Lapthorn Tarlo Lyons.

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