Charities face crisis over drop in gifts from wills

Depressed stock markets, the pensions crisis and the rising cost of long-term care are leading to a decline in the number of people making legacies to charities, says William Kay

St Columba's Hospice in Edinburgh couldn't have been more delighted when it discovered that Lady Hilda Morton, a wealthy socialite who died this year aged 101 and who had devoted the latter half of her life to fundraising, had left it most of her £1.9m fortune. The hospice's secretary, Graham Burnside said: "It looks like it will be the largest amount we have ever been bequeathed. We are absolutely delighted. It costs around £4m a year to run the hospice, so it will make a massive difference to us."

But St Columba's good fortune is becoming increasingly rare. A growing number of Britain's charities, already under pressure from the depressed stock market and smaller donations by a public faced with growing financial uncertainty are, in effect, being starved from beyond the grave.

New data from the consortium Remember A Charity, which represents 105 fundraising organisations, shows that the previously lucrative source of legacy donations is drying up. The research reveals that 54 per cent of 50-65 year-olds believe that money left to charity in wills is of little importance, and 40 per cent are not likely to include a charity in their will.

The stock market's behaviour, the Government's pensions squeeze and the rising cost and likelihood of long-term care are combining to make more over-50s believe they will not have enough spare cash to afford a charity provision in their will.

Clare McKeown of Save the Children said: "For us, legacies are absolutely vital, as it accounts for 40 per cent of the income we receive from the public, and we are pretty typical. It was down slightly, to £14.5m, in the year ended last month and we are particularly worried at the moment about whether it will hold its own."

According to Close Wealth Management (CWM), the value of UK charities' and voluntary organisations' equity investments has fallen by as much as £8.6bn since the start of last year.

Martin Smith, CWM's chief executive, said: "Charities are coming under huge pressure. In January last year, UK charities and voluntary organisations had around £29.24bn in equities alone, but between then and last month stock markets have slumped, the FTSE All Share fell by around 31 per cent and the FTSE World Index by 25 per cent. Charities' overhead costs are rising dramatically – insurance premiums are up by as much as 300 per cent, donations from individuals and companies have fallen, and investments which charities rely on for around one-fifth of their total earnings, are being hit by depressed stock markets."

There are almost 200,000 charities in England and Wales, with a total annual income of about £25bn. Money left to charity is worth £1.1bn a year – more than 40 per cent of income for the top 10 charities.

But the top six per cent receive 90 per cent of that, leaving a long tail of smaller charities to scrape donations from wherever they can. "There is a lot more competition between charities, and we are increasingly competing for a smaller cake in terms of donations," said Karen Suter of the Royal National Institute of the Blind.

Most worrying, there is little agreement among charities as to why legacy donations are slipping. In part the fall is accounted for by legacies of stock market portfolios being worth not much more than half their value three years ago, but this is not the whole story. There are also fewer donations from estates. The puzzling factor is that most legacy decisions were made several years ago, before the stock market slump and before the recent apprehension over pensions, long-term care and higher personal tax rates.

Some charities have been driven to desperate measures. Many unwanted pets were turned away by animal charities at the start of this year because they could no longer cope with the post-Christmas influx.

But most charities have so far been able to cope with the crisis by cutting back office costs rather than front-line services to avoid hitting those they are trying to help. That, however, will be the next step if they don't make the most of their money.

Mr Smith said: "Investment companies need to spend more time understanding the level of risk their charity clients wish to take. We urge charities to review their investment portfolios to make sure they are both realistic and in tune with their objectives. They should also review their investment managers as in some cases they may have received indifferent service which has exacerbated their financial problems, such as being placed in an in-house unit trust or charged for providing a selection of last year's top-performing funds, inadequate diversification of assets, being overweight in particular markets and inconsistent performance."

David Brann, chairman of Remember A Charity, said: "At present almost seven out of 10 people in the UK population support charities, but fewer than one in 20 remember a charity in their will, according to the Charities Aid Foundation and the National Council for Voluntary Organisations. Yet it's a very easy way to give and show commitment to a cause."

Ms McKeown said: "We would really like to get the message out to people how important it is, and that it is possible to remember a charity without disadvantaging your friends and family, by leaving a charity a residuary legacy."

The residual of a dead person's estate is in effect what is left over after specific bequests have been allocated, such as jewellery, paintings, personal effects or precise sums of money. Depending on how much is involved, it can be divided as many ways as a person wishes when the will is being written.

Said Mr Brann: "All you need to do is contact your solicitor and financial adviser, and they'll sort everything out for you. Explain that you want to include a charity or charities – your adviser should be happy to help. We've spoken and written to many solicitors who are very enthusiastic about this campaign. You could leave money, an item of value, or the residue. Including a charity in this way is particularly valuable, as it keeps pace with inflation."

People who are in a position to take detailed financial advice are often encouraged to leave a charitable legacy because of the tax breaks: any money left to charity is deducted from the value of an estate for the purpose of calculating inheritance tax.

But, for the time being at least, when people sit down to write their wills they are deciding that charity begins at home, and the real charities are being left out in the cold.

How to give your money away

Gift Aid is a way of allowing a charity to claim tax relief on gifts made by UK tax payers. The charity is able to reclaim basic rate tax on any Gift Aid gift, and the donor can reclaim Higher Rate Tax if s/he pays it. To enable this tax relief to occur, the donor must make a Gift Aid Declaration, which can be done on paper, by e-mail, over the Web, or verbally. Gift Aid can cover all gifts made since 6 April 2000, and is back-dateable to that date.

Payroll Giving Scheme Ask your employer to take out a certain amount of money from your salary each pay day. The gift has to go through an "agency charity", of which the most common used is the Charities Aid Foundation, which operates as "Give as You Earn". At present, to encourage more people to use the scheme, the Government adds a further 10 per cent to your monetary gift.