When many of us think about our legacy, we think financially. How much could we leave our descendants and how should it be structured? Both very common questions for financial advisers, but increasingly people are considering the legacy of the planet and the society they’re leaving behind and want to make a financial difference. This is being evidenced by their investment preferences and charitable bequests in Wills.
According to Smee & Ford, in its most recent edition of its Legacy Trends report, 6.1% of the population leave a charitable bequest in a Will.
The Legacy Trends report’s five-year trends show how the pattern of giving is shifting over time as the proportion of legacies received from the ‘greatest’ generation (aged 92 plus) falls and the legacies left by the ‘silent’ generation (aged between 92 and 73) and ‘baby boomer’ generation (aged between 72 and 54) begin to emerge.
Key findings from the Legacy Trends report
- Legacy income is between £2.8 billion and £2.9 billion – the largest ever reported.
- There were 36,445 charitable estates in 2017 which is consistent with the number recorded in 2016.
- The general longer-term trend is that the number of charitable estates is increasing.
- Charitable estates were worth £17.9 billion in 2017 growing by over £1.8 billion over the year period, pushing up residual donations.
- 15.6% of the value of charitable estates (donor wealth) went to charities.
- 6.1% of the population leave a bequest in a Will.
- 122,144 bequests were contained in Wills in 2017.i
Legacy income of top 10 charitable organisations in 2016/17
- Cancer Research £186.6m
- Royal National Lifeboat Institution £130.5m
- Royal Society for the Prevention of Cruelty to Animals £78.6m
- Macmillan Cancer Support £76.7m
- British Heart Foundation £73.3m
- The National Trust £61.6m
- Salvation Army Trust £50.4m
- The Guide Dogs for the Blind Association £47.9 m
- PDSA £45.1m
- Royal National Institute of Blind People £41.7m
Environmental causes on the rise
Overseas aid and environmental organisations have seen the most growth in supporters, and now sit within the top five causal areas for gains in legacy supporters. The cause of this could be increasing publicity through the media – for example David Attenborough’s Blue Planet has been widely praised for drawing attention to the ocean’s plastic problem.
However, the cause with the highest increase in legacy supporters is medical welfare, followed by sport and recreation, and rescue services. The report reveals that religious organisations have seen the largest fall in legacy supporters over the past five years. This is followed by hospitals, aged, children and youth, and disabled charities.ii
As financial planners, it’s important that we mention the benefits of philanthropy, which could explain some of its growth. When ten per cent of an estate is left to a registered charity, the Inheritance Tax payable over the Nil Rate Band is reduced from 40 per cent to 36 per cent.
This trend is encouraging for supporters of environmental causes though. Back in 2007, less than two per cent of UK charitable grants went towards environmental concerns, and only five per cent of the £8bn donated annually by private individuals went to green charities.iii
At an individual charity level it is the most recognisable brands at the top with little emphasis on environmental or ethical causes.
It’s possible that the recent report by the Intergovernmental Panel on Climate Change (IPCC), which issued a stark warning on the state of the planet, could influence the charitable giving decisions of people in life and when they consider the world they’re leaving behind.
Causes by the combined annual change in the number of supporters (2013-17)
Investors making money talk
Perhaps surprisingly, investors are playing a key role in the lobbying effort to convince governments across the world to adhere to commitments made in the Paris accord. One might think of Greenpeace or Friends of the Earth as the natural leaders here, but money talks to those who might not otherwise listen. Some of the world’s biggest investment houses controlling $30 trillion (£23 trillion) worth of funds have agreed to join forces to put pressure on governments to tackle climate change.
Institutions such as Aviva, Schroders and Legal & General Investment Management will lobby governments around the world to adhere to the promises they made to tackle pollution in the Paris Agreement on climate change. A core group of 120 investors has also agreed to try to ensure their portfolios do not contain investments that might damage the environment.iv
These institutions realise they have the broad backing of their investors too. Increasingly, individual investors are looking for value in their investments and this is not limited to returns – they’re making ethical investments. It is estimated that there is £16bn invested in ethical investments in the UK, and globally this figure is closer to $80bn.v
In research carried out in February 2018 by New Model Adviser, almost a third of respondents to a survey of 2,004 people said the ethical, social or environmental impact of the company they were investing in was just as important as the financial return.vi
What does the future hold?
It’s reasonable to assume that the trend towards supporting environmental and ethical funds will increase. The key messages from the IPCC’s report were that the planet’s ecosystem is under threat without drastic measures to change the direction of travel towards a 2°C global temperature rise.
Medical welfare seems likely to keep its spot at the top of the charitable donations tree, as the vast majority of us are affected in some way by the conditions these charities work to fight against, either directly or via a friend or close relative. The difference with climate change especially, is that more of us can expect to be personally affected in the coming years by extreme weather.
Future generations increasingly conscious
According to statistics from Rathbone Investment Management, ethical investing is a practice gaining in popularity with younger investors. More than a quarter (27%) of millennials would take their investment out of a company if it faced allegations of misconduct or unethical behaviour, despite it achieving high returns, versus just 9% of those aged between 55 and 64.
High net worth (HNW) millennial investors are even more ethically minded, with 41% claiming they would remove their investment from a company if it received allegations of unethical behaviour.
In a world where the US government pursues a policy that doesn’t acknowledge the manmade contribution to climate change and seeks to extricate itself from the Paris climate accord, actions of individuals and institutions become much more important.