The inspiration for this piece came from our presentation at this year’s ILM Annual Conference in July 2023.  Legacy Foresight’s Kath Horsley, Director of Insight, and Jon Franklin, Economist, discussed the current and predicted state of the legacy market in relation to economic and political uncertainties, and what the sector can do in response.

The last 12 months have seen political chaos (with no fewer than three prime ministers), financial turmoil (rising energy prices and inflation) and signs of a housing market slowdown. Despite this adversity, the legacy market showed resilience. 2022 saw legacy income reach a record level of income of £3.9bn from 137k bequests.

But what about the future? In the near term, the legacy market is braced for challenges coming in from several directions.

House prices, the biggest driver of average legacy values, are heading downwards
Official figures suggest that the value of the average house in the UK has fallen by around £7,000 (2.4%) between the peak in September 2022 and April 2023. The consensus view suggests that prices could fall by a further 3-7%. However, there is significant uncertainty around the timing of this with some forecasters expecting it to happen predominantly in 2023 before the market bounces back whilst others expecting a protracted stagnation lasting into 2025 before a recovery starts.

Estate administration processes are problematic
The HMCTS backlog began in 2019, and delays throughout the probate process were worsened by the pandemic. By 2022, the situation had started to improve, with grants of probate being processed at a steady rate. But the backlog started to grow again in 2023, partly because the number of grants received increased but also because there wasn’t the expected increase in processing capacity as a result of new recruits to HMCTS. With deaths and bequests rising, the process could come under more strain, but we hope the new recruits will soon create additional capacity, which should alleviate these pressures.

What does all this mean for legacy income?
The forecast is still positive, just not as positive as we’d like. Growth is projected (we estimate legacy income will be £4.2bn by 2027), albeit at a slower rate than predicted this time last year. A rising death rate coupled with economic prosperity saw the legacy market grow 70% between 2012-2022. Between 2022-2032, growth is predicted to be 34%. Deaths are still rising but the economic outlook is bleaker. However, predicted growth for the decade thereafter is more positive at 46%.

How can charities drive faster growth?
Currently, around 3.5% of all wealth at probate is transferred to charities. If we were to increase that to 4%, it would equate to +£0.5bn, a 13% increase on legacy income in 2022. Put simply, we can think about how that might be achieved in two ways:

1. Grow bequest numbers
   At today’s average legacy gift value, an additional 17,000 bequests would be needed to generate the extra £0.5bn. This is not only ambitious, but the increased volume of probate grants could overwhelm an already stretched administration process
2. Increase the value of gifts
   We’d need fewer than 3,000 gifts over £100k to generate an income level of +£0.5bn. High value gifts make a great impact. 56% of all charitable legacy income is driven by just 8% of gifts over £100k. Gifts over £250k make up 30% of income and come from just 2% of gifts.

At the moment, there are fewer than 3,500 legacy gifts per year valued at over £100k. But there is potential for more, as 46,000 people in the UK have estates valued at over £500k at probate.

In the fig below, each icon = 10k deaths. There were around 650k deaths in 2022.
Green icons = deaths that led to a charitable bequest (around 44k).
Orange icons = bequests greater than 100k (around 3.5k).

Baby boomers – a large population cohort with relative wealth
One in four boomers is a millionaire. What should charities do to try to maximise larger gifts from this future cohort of legators?

• Be careful about driving down gift values. Promoting the 1% ‘social norm’ message increases the number of gifts but decreases their value
• Understand that larger gifts are more likely to be restricted, so stating you prefer unrestricted gifts can deter wealthier donors
• Work with major donor colleagues to introduce high value supporters to the idea of legacy giving, and jointly steward them to give a more personalised service
• Offer appropriate stewardship to supporters leaving large proportions of their estates. They may not necessarily be high-net-worth individuals, but rather the moderately wealthy who are leaving the majority of their estate to charity
• Explore the potential for blended giving, where their overall donation is split between regular giving and a legacy gift
• Get to know professional advisers. High-net-worth individuals often have family offices, accountants, lawyers or philanthropy advisers

What does all this mean for legacy administration teams?

While an increase in the volume of gifts would translate to a higher workload for legacy administration teams and put more pressure on the probate process, increasing the values of gifts could have its own repercussions. It’s likely that charities would see a higher number of more complex and challenging estates which would not only increase workload but also heighten the demand for specialised admin experts. And high value gifts could worsen income volatility for charities – something which is already difficult enough to manage.

Navigating the challenges to speed up growth in legacy income won’t be easy, but the downsides could be viewed as a fair price to pay for a significant reward.