Can we teach old dogs new tricks? Increasing giving through Wills

We’re delighted to have this guest post from Ross Anderson, Director on the Board of the Include a Charity campaign and Christopher Baker, a Research Fellow at the Asia-Pacific Centre for Social Investment and Philanthropy. There are few people in Australia better placed to talk about charitable giving via Wills.

We all know that there is significant demographic change underway in Australia.  The next decade will see Australia’s population exceed 25 million and age dramatically. It will also see members of the population boom that followed the end of World War II (Baby Boomers born between 1946-1964) firstly retiring and then ultimately passing away in increasingly large numbers.

Baby Boomers currently comprise 24% of our population, yet they own over 50% of our nation’s private wealth. By 2020, when most of those ‘never-grow-old’ Baby Boomers will be in their 60’s and 70’s, we will witness the start of the biggest inter-generational wealth transfer in our history.

No wonder charities are stepping-up their efforts to generate increased income from gifts in Wills. This is one of the most logical and obvious sustainable funding strategies that they could possibly adopt given these demographic predictions. But we must act together now to truly harness the powerful philanthropic effects of an increasing mortality rate and the intergenerational transfer of huge wealth that is anticipated to occur over the next 40 years.

What do we know about this form of philanthropy?

Not that much as it happens. We know that charitable giving through Wills in Australia is wildly out of kilter with levels of ‘giving whilst living’ via the support we give to charities whilst we’re alive.

The latest ATO figures show that 4.4 million Australian taxpayers (or 35.55% of the Australian taxpaying population) made tax-deductible donations totalling $1.96bn in 2009-10. Other studies estimate that almost 90% of us support charities in some shape or form.

So why is it that only 7% of us have been sufficiently inspired to include gifts to our favourite charities in our Wills?

A detailed study at Swinburne University of Technology of 1,700 Victorian wills has provided the statistical evidence for what you might have already expected to hear.   The overwhelming majority of us leave all of our accumulated wealth to our immediate family members: first to our spouses, then to our children.  It doesn’t seem to matter how much wealth we’ve accumulated or whether or not we have contributed generously and passionately to charitable causes throughout our lives, when it comes to dividing up our estates – charities essentially don’t get a look in.

The question this raises is whether or not f this role modelling by older Australians has  doomed future generations to repeat this same pattern of estate-planning and overlook charitable giving  in their Wills too?

Let’s be clear, of course looking after our families comes first in most cases.   Adequately providing for those who are dependent on our financial support during our lifetimes is an important aspect of our estate-planning and decision-making. Our current family provision legislation and our ability to challenge the final wishes set out in our Wills ensures that the legal system makes this a reality.

There are however more significant levels of charitable giving through Wills in comparative countries:

In the UK, despite the fact that a very healthy looking 16% of British Wills that went into probate last year contained charitable gifts, the UK Government has introduced substantial financial incentives in an attempt to encourage further giving from personal estates to charitable causes (see www.legacy10.com  for more information).

In the US, the latest figures show that charitable giving through American Wills increased over 12% in the last year to a total of US$24.41 billion.

With our current levels of giving, Australia sits very low down on the league table of charitable giving from Wills.  We don’t believe this is something to be proud of.  We do see it however as a significant opportunity to improve.  The big question we face is “What we can do to inspire more Australians to leave money to charitable causes in their Wills?”

So, what can we do?

Many Australians will be shocked to learn that so few of us make any charitable provision what-so-ever in our Wills.  Given our self-perception as a generous nation, it is unlikely that most of us actually take a considered decision to specifically exclude charities; low participation rates are far more likely to come as a result of a general lack of awareness or falsely perceived barriers getting in the way.

Our current behaviour is unlikely to change without a collaborative and systematic approach to improving our attitude towards charitable giving through our Wills.  This is not an either / or decision. The challenge is not to try and get Australians to leave their entire estates to charities instead of their families.  The challenge is to get most of us to a point where we can consider leaving most of our estates to our families AND to include gifts as a small portion of our estates to our favourite charities.

The Include a Charity campaign (www.includeacharity.com.au) is a practical response to that very challenge. With some realistic, measurable and achievable goals in its attempts to bring about wide-scale social change, this is one of the only true cross-sector initiatives led by 140 Australian charities. With ambitious plans for further collaborative, collective joint impact initiatives, this is one social change campaign to watch.

The campaign has already delivered a wide range of targeted activities to introduce the idea of including charitable gifts in the nation’s Wills to a wider public audience. It is also seeking to increase the skills and sophistication of all in the sector in our efforts to encourage more Australians to take the step of including a charity when preparing their Wills.

We know that the challenge of tipping the very strong prevailing social norm in estate-planning away from thinking about “family only” and towards thinking in terms of “family first, philanthropy second” is large indeed.  It is important to the sector and to wellbeing of Australian society that we are able to make some significant inroads to change the current behaviour in estate-planning.

Arguably we have a window of opportunity to change Australian’s attitudes towards charitable gifts in their Wills of some 10 years.  If Baby Boomers start to include more charitable gifts in their Wills now, the sector will start to receive significantly increased income from this generation over the next 10-20 years.

We’d like to hear from you

The Include a Charity campaign is open to your suggestions and ideas.  We’d love to hear your reflections on what you think is needed to change our behaviour.

  •  How can we work together to inspire older Australians to act philanthropically, supporting their favourite causes at the same time as making sure their families are provided for?
  • Are Australian children entitled to challenge their parents from “spending the kids’ inheritance”?
  • Does the Government have a role to play in incentivising more charitable giving through Wills?

You can continue this conversation with Ross and Chris via the comments section below, or chat with them on Twitter via @ChristopherSWIN and @rossandersonIAC

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12 Comments on “Can we teach old dogs new tricks? Increasing giving through Wills”

  1. Kate says:

    Hi Chris and Ross
    Thanks for the post. I remember reading an article last year that indicated an increasing number of Wills are being contested by families (not necessarily due to charitable gifting) in Australia. If this is true, are we better placed focusing our attention on giving while we’re living or have other countries dealt with issues around contests in other ways? Are charities concerned that if they are left funds in a Will and a family member contests that it might reflect poorly on them if they ‘fight’ to keep what was given to them? Do you think any of these issues impact on the level of monies left via Wills?
    Kate

    • Christopher says:

      Hi Kate
      Thanks for your comments and questions. We are definitely supporters of giving while living. There is a big difference however: regular gifts (while living) tend to come from income; bequests are made from assets. Bequests are planned in advance, as part of the will making process, and less prone to economic fluxuations.
      The approach of individual charities differs in responding to challenges, however I can confirm that Include a Charity recommend in the campaign’s central messages that anyone leaving some of their estate to charity should make a point of advising their family of the gift and why it is being made. This is the best way to minimise the chances of family members contesting a charitable bequest.
      On another plane, it also has to be said that in both the UK and the US, inheritance taxes apply to the highest value estates. Paying the tax office is not contestable, but in both nations tax on estates can be reduced by giving to charities. Inheritance taxes do not apply in Australia, so there is no structural “incentive” to give.
      Christopher

      • Cat Fay says:

        Hi Chris – just on the issue of inheritance taxes here in Australia, did such a tax exist here in Australia and is there a view that the reintroduction of such a tax would be politically unpopular and therefore unlikely ever to happen?

        Are there other potential incentive structures we can look to in the US and UK that may encourage giving through Wills? You’ve asked the question in your post, i guess I’m throwing the ball back in your court!

        Cat

      • Hi Kate,

        Good questions – I’ll just add to Christopher’s earlier reply.

        Anecdotally, there has been an increase in the number of charities reporting that estates with charitable gifts are being challenged. We’re watching this very closely in Victoria where the law has widened the scope of people outside of family members that are able to challenge estates. Some charities do not defend their rights as the named beneficiaries as they are concerned with tarnishing their reputations and being portrayed in a poor light in the media. There is a fear amongst many charities of being seen as the protagonists in these instances, ‘cheating’ families out of their rightful inheritances. But this is far from the truth as charities named as rightful beneficiaries would merely be defending their rights whilst being challenged by others either not named in those Wills or who feel they are entitled to more.

        This is a shame as all they are doing is defending their legal rights and trying to fulfil the final wishes of the Will-maker / testator, whom let’s not forget did include gifts to charities and make decisions about how they wanted their estate to be divided whist they had full capacity to make those choices. Family Provision legislation is based on the presumption that families are entitled to be looked after – how much and for how long is surely at the discretion of each individuals based on an increasingly complex set of family circumstances

        Include a Charity is gathering data from its charity members to help monitor and evaluate the situation, as very little is actually know about the amount of income that charities are ‘missing out on’ through contested estates. We hope to analyse whether there are trends and if poorly founded claims are making good causes miss out on more income that they are currently legally entitled to.

        We all recognise that it’s a particularly difficult and sensitive area as there are some many complexities when the law assesses whether people have valid claims to increased entitlement or if some claims are brought about due to unrealistic expectations. Many charities run scared from being associated with ‘fighting against needy families’ rather than ‘defending their rights’. However, increasingly we’re seeing charities work together to bring about the best possible outcome with minimal financial losses to both family members and good causes.

        We really hope that this doesn’t affect people’s decision to include gifts to charities, perhaps it will increase the amount through better consideration before Wills are written? But what this issue has given charities is a strong case to work more closely with solicitors and charity supporters to ensure that we minimise the risk of Wills being contested in the future and their valuable, hard-earned assets being squandered by legal arguments. When media scrutiny is so one-sided, let’s hope that the good news stories about what charities can do through these gifts makes more headlines than the traditional charity-bashing ‘evil charities vs. needy families’ articles we’ve seen recently.

        Starting a conversation about your plans to include charities in your Will is one of the most effecitve ways of preventing any nasty surprises to your family and prevent possible challenges to your Will in the future. Let’s get those conversations going!

        Ross

  2. Christopher says:

    You are correct Cat that we had a combination of State and Comm inheritance taxes in Australia up until the end of the 1970s. Qld abolished its inheritance taxes so all the other states followed lest the wealthy simply change their registered address. The Comm Govt too abolished the tax, for less easily understood reasons. The Productivity Commission made a recommendation that consideration be given to exploring such a tax. It was dropped like a hot potato.
    As you have identified, introduction of an inheritance tax is not likely to be in the electoral intersts of either major party. While only a few might be impacted, those few would be wealthy, influential and prepared to throw considerable resources into fighting anyone proposing such a thing. A high net wealth Australian has recently argued that one approach would be to introduce tax on very high value estates, let’s say more than $30m, and allow the inheritance tax payable to be reduced by the amount of funds the taxpayer has claimed as DGR gifts over their lifetime. So, if you have already given a lot, nothing is payable from your estate. If you have given very little, then a share goes to the tax office (for charitable distirbution) on the transfer of your estate.
    In my view, the most effective approach is likely to be changing the social norms across our society as a whole, such that as well as considering ourselves generous givers while living, we also have a self perception that extends that generousity to giving a share from the residual of our estates. Not everything! A share. We all do it, as a matter of course. As Ross and I have posted, this is long term social change. The challenge is great but not impossible. The prize is huge!
    Chrisotpher

  3. Sarah says:

    This is a great post. I think a lot of charities are starting to move in this area but as Chris and Ross point out, Australians usually don’t consider leaving a philanthropic gift in their wills, and, of course, there is little on giving via wills in the media except those odd/bizzare giving stories about contested wills!

    • Thanks Sarah. Wouldn’t it be wonderful if the media could shine a light on the positive work that charities are able to do with their supporters’ gifts and the marvellous philanthropic legacies that gifts in Wills have already created here in Australia?? We’re hoping that Include a Charity Week (17-23 Sept) can provide the other side to this story – we’re encouraging all 136 of Include a Charity’s member charities to broadcast positive messages to the public about gifts in Wills and their power to transform our society.

      Ross

  4. Leslie Falkiner-Rose says:

    Thanks for the thoughtful post Ross and Chris. I suspect the conversation may need to begin with our emotional investment in the money and assets we leave behind. What financial legacy do we want to pass onto our family members? How much is enough? What wouldn’t they miss that could greatly benefit others? Are we able to face our own mortality enough to discuss our wills with loved ones? Do our wills have the possibility to provide an ethical, as well as financial framework, for our beneficiaries? Do we want the blessing of our beneficiaries if we are thinking about leaving part of their potential inheritance to charity? So many questions that involve examining our relationship with, and real value we place on, money and assets. Now how to encourage friends and families to talk about those issues….? Leslie

  5. Jenny Westwood says:

    Perhaps financial advisors are putting people off – I went to one last week (connected with one of the big banks) and he said he thought that if you left your whole estate to a charity (say worth $600,000), he thought that the government would take tax of 1/3 on the sale of the property before the remainder was handed over to the charity (and thus the charity would only get $400,000). He was unsure if it applied to tax deductible charities or not. But he did raise it as a possible problem which I had no awareness of. Is there any truth in what he said?

    • Hi Jenny,

      It doesn’t sound like you’ve had the inspiring advice I was hoping that financial advisors would give to people like you who are thinking of making a very generous and thoughtful gift to their chosen charities!

      I’ll start off by saying that I’m not tax expert myself and each case needs to be looked at within its own circumstance. Tax liability is an important issue to take into account and explore for everybody, irrespective of whether the beneficiary is a charity or not.

      The nature of type of a charitable gift and the taxation status of the charity will affect the taxation status of a bequest. The Tax Act allows for a capital gain tax (CGT) arising from a bequest gift to a charity with Deductible Gift Recipient status to be disregarded, provided that the gift would have been deductible had it been made during your lifetime. Therefore your estate would not be liable for paying the CGT liability – the gift would effectively be made at the full value you planned and the charity would benefit from every dollar you gifted.

      There are lots of issues to explore before making significant gifts in your Will (like a property or a share portfolio) and getting good advice from an experienced financial advisor, estate planner and seeking specialist tax advice can help maximise the impact of your gift and ensure that any tax liabilities are minimised. After all you want to make sure that your chosen charities can use your gift to the greatest impact.

      It is widely recommended that if anybody wants to make a non-cash charitable gift in your Will (like your property or shares) that you should make contact with your intended charity beneficiary to discuss the gift in more detail and then seek good advice about the likely tax consequences from an estate planner, financial advisor or a good tax specilaist. There are many, many ways that you can give tax-effectively through your Will and maximise the impact that your philanthropy can have. You can read more about this in Michael Flynn’s book “Death & Taxes: Tax-Effective Estate Planning”.

      Ross

    • Christopher says:

      Hi Jenny, Ross and I have liaised on this one. It is indeed a pity that any financial adviser would give ill-considered advice that deters people from acting on their wishes.
      For will that are already in place, if executors take good tax advice before distributing any gifts to a DGR status charity then the charity should receive the gift in full.
      Nevertheless, tax in Australia is complex – what happens with a charitable gift will depend on the source (e.g. whether a main residence, or an investment property; whether bought before the introduction of Capital Gains Tax (CGT); if it happens to be part of the Cultural Bequest Program; and whether or not the charity has DGR status … the list goes on).
      For people preparing a will, to navigate through the complexities it is a good idea where possible to access a financial adviser or tax adviser with understanding of and experience in the area. Contact with the charity concerned when drafting the Will also enables the charity to lend its experience and expertise, and to respond to any questions.
      For anyone thinking of leaving a charitable bequest, a practical starting point would be to speak with the charity or charities in mind, as they will be able help directly and/or point you to an appropriately skilled adviser.
      Christopher

  6. Daniel Ford says:

    By working together IaC’s member charities are hoping to change the way that Australians think about charity giving. We hope that over time, more people will talk about it.


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