What will 2020 mean for charitable bequests?

Rob Cope explains why charities and the legal profession need to co-operate to ensure legislation evolves in a way that protects legacy giving

We’re seeing significant growth in legacy giving, with a broader range of charities being named in wills. It’s a huge opportunity for the charity sector.

In 2020 we expect to see proposals for legislation that will change the way that people write their wills for generations to follow, including changes to inheritance tax and the probate structure.

First of all, let’s remind ourselves how much of a big deal charitable bequest are for us as a nation. The UK public donates a phenomenal £3bn to good causes through their wills each year – a 50% increase on donation values a decade earlier.

This makes legacy giving the largest contributor of voluntary income across the country. In other words, charities are heavily reliant on gifts in wills. What’s more, public appetite for legacy giving is on the rise.

In our latest consumer tracking poll (OnePoll 2019), four in 10 of respondents over 40 years old said they would be happy to leave a gift to charity in their will, up from just over a third (35%) in 2008.

Solicitors and professional will-writers are already playing an increasingly important role in alerting clients that they have the option of giving to charity and reducing the tax burden on their estate at the same time. But the world is shifting rapidly, and this makes it all the more important that the charity and legal sector work together to protect the legacy environment.

Limiting disputes

In an increasingly digital world, traditional will-writing practices can seem cumbersome and outdated. That’s why the Law Commission announced a review of legislation around will writing back in 2017, aiming to modernise current processes and tackle intestacy, which is arguably the biggest barrier to leaving a charitable bequest.

After all, you can’t donate from your will without having one in place. A recent survey by Macmillan Cancer Support found that as many as 42% of the over 55s in Britain haven’t written a will.

Overhauling the current system is a great opportunity to make will-writing infinitely more accessible, while also ensuring that adequate safeguards are in place to protect the vulnerable and minimise disputes.

If the legal industry gets the balance right, this could be crucial for growing charitable legacies. So, we’re hopeful that we’ll see an outline of the new policies soon.

Introducing the ability to submit wills electronically or by video could really help engage both younger testators and the elderly, or those with disabilities who can no longer write or visit a solicitor’s office.

There’s been high demand for online will-writing in recent years, with more providers and services on the market making it easier for people to write or update their will.

This shift to a more accessible will writing environment is a welcome one, but it certainly doesn’t mean that fast and cheap wills are the answer. It’s vital to ensure that the right level of legal advice and protection is available.

When it comes to legislative reform or relaxing laws around what makes a will legally valid, the challenge remains to avoid increasing the scope for legacy disputes. This makes it all the more important that appropriate checks are put in place to test mental capacity and protect against undue influence.

The charity sector breathed a collective sigh of relief when the Ministry of Justice’s (MoJ) plans to hike up probate charges for wealthier estates were taken off the table this October.

The proposed probate system would have seen thousands of bereaved families a year facing sliding charges of up to £6,000, as opposed to the current flat rate fee of £215. Concerned that the plans were unfair and disproportionate, charity bodies warned that such a hefty price tag could severely discourage legacy giving and estate planning altogether.

The fact that planned fee increases have since been called off is indeed great news, but the MoJ has also made it clear that the probate structure will be reviewed again. It’s important that we don’t take our eye off the ball when it comes to future proposals.

Tax relief

Although the Office of Tax Simplification recently reviewed Inheritance Tax (IHT) and recommended that the tax should remain (with some tweaks), there is continued debate in parliament and in the press over the future of this unpopular tax.

With generous tax breaks for those that leave a charitable bequest, changes to the tax regime could indeed have implications for the charity sector. Charitable gifts in wills are currently exempt from IHT (charged at 40%) and those that donate over 10% of their estate to charity benefit from a discounted rate of 36% across the remaining value of their estate.

Tax relief alone is unlikely to be the key reason that someone chooses to donate, but it is a powerful driver of gifts in wills nonetheless. Why? For people whose estate is valued at just over an IHT threshold level, a charitable gift can help to bring the taxable sum down considerably.

But the real importance of the IHT incentive is that it makes legacy giving a key consideration for legal advisers and their clients. It ensures that charitable bequests are not simply an occasional added thought, but a core component of estate planning. And that is critical when it comes to creating a pathway to normalise legacy giving.

Of course, IHT applies only to a minority of estates. In an ideal world, we hope to see future legislation passed that incentivises everyone who includes a charitable gift in their will, not only the wealthy.

We have proposed that VAT is waived on the cost of will-writing of any estate that includes a charitable donation. This would not only ensure that fiscal incentives are available to all but gives solicitors another option for opening up conversation about legacy giving.

After three years of uncertainty, Brexit may yet lead to a short-term dip in market confidence, property and share prices for 2020 – and, in turn, the value of charitable bequests. This isn’t something to shy away from.

There is little we can do to control market fluctuations from year to year and the long-term outlook remains extremely positive, but what is vital is to protect is the propensity for giving.

In this respect, 2020 could indeed be a pivotal moment. We are on the cusp of the greatest transfer of wealth in history from baby boomers to the next generation. Gifts in wills and in memory giving are predicted to double in the next 25 years, due to rising death rates and expectations that the socially-minded baby boomer generation are more likely to give (Legacy Foresight, 2019).

With charities and the legal sector now working even more closely together to support those that wish to include a gift in their will, this could well be the greatest opportunity to make legacy giving a social norm.

Rob Cope is director of Remember A Charity rememberacharity.org.uk