Bequest boom won’t happen by itself

We can’t be complacent and assume that there will be a massive boom in charitable bequests in Australia in the coming decades, we need some concerted action to try and make it happen, writes Krystian Seibert.

New research predicts that the value of charitable bequests in wills could more than double in real terms by 2040.

I hope that this happens, but I’m also somewhat pessimistic.

The new issue of the Third Sector Review journal has a number of interesting articles exploring the findings from the Giving Australia 2016 study. One of the articles, written by my colleagues at the Centre for Social Impact Swinburne, highlighted that between 2005 and 2016 the proportion of Australians who had left a bequest in their will had actually gone slightly down from 7.5 per cent to 7.4 per cent.

Given that the median age of Australia’s population increased during this time, and operating on the assumption that an ageing population will lead to more charitable bequests, I would’ve expected that this figure would’ve gone up rather than down.

What this tells me is that we can’t be complacent and assume that there will be a massive boom in charitable bequests in Australia in the coming decades. I actually think that if we want to see such a boom, we need some concerted action to try and make it happen.

There are a number of levers which can be pulled to try and do this.

Firstly, the army of advisers need to be enlisted in the campaign. 

I occasionally ask older friends who use lawyers and accountants for the purposes of estate planning about whether their adviser has asked them whether they would consider leaving a charitable bequest in their will. Most often, the answer is no. 

Research conducted by the Australian Centre for Philanthropy and Nonprofit Studies at Queensland University of Technology backs up the findings of my rather unscientific straw poll of friends – its survey of advisers found that most reported discussing philanthropy with less than 10 per cent of their high-net-worth clients.

This has to change.

I don’t necessarily expect lawyers and accountants to sell the benefits of leaving a charitable bequest to their clients. But I do expect them to ask their clients whether they are aware that they can leave a charitable bequest in their will, and then let their clients decide whether they do it or not. I would like to see every lawyer and accountant in Australia inform their clients about this option.

To see change in this regard, I think we are going to need the professional associations representing lawyers, advisers and financial planners to educate their members in this area and encourage them to more proactively advise their clients of the option to leave a charitable bequest. One sentence, repeated hundreds of thousands of times between advisers and their clients, could mean much more funds available for charitable purposes in Australia.

Secondly, there are some policy changes which could help grow charitable bequests in Australia.

According to modelling by the Grattan Institute, the median retiree will leave an inheritance of $190,000 in today’s dollars, or 33 per cent of their savings at retirement, in addition to any home they own. As this is data for the median retiree, there are some who will leave much larger inheritances when they die. 

Although we don’t have an across-the-board inheritance tax in Australia, we do actually have a small version of it applying to superannuation that’s leftover when a person dies.

Under existing laws, any superannuation funds which, upon a person’s death, are distributed to a non-dependent are taxed at up to 15 per cent plus the 2 per cent Medicare Levy.

That means that any leftover superannuation which is earmarked for a charity after a person’s death will be taxed.

But even earmarking leftover superannuation for a charity is made difficult. 

That’s because a person cannot use a Binding Death Benefit Nomination to make a superannuation bequest – these can only be used to gift superannuation to a dependent or the person’s estate (once gifted to their estate, it can then be given as a bequest to a charity). 

Given that some individuals may still have relatively large superannuation balances at their death, we should be encouraging them to gift some of this to charities.

People should be allowed to use a Binding Death Benefit Nomination to nominate a charity with deductible gift recipient (DGR) status to receive a bequest directly from their superannuation upon their death. This could be capped at a certain percentage of their superannuation balance to ensure that the first priority remains the provision of support to a dependent. 

The fact that the Binding Death Benefit Nomination form would mention the option of allocating part of any leftover superannuation to a charity would prompt people to think about doing exactly that.

And any superannuation bequest to a charity with DGR status should be exempt from taxation, consistent with how donations from a person’s income are treated during their lifetime. This would introduce a new tax incentive for charitable bequests.

This proposal was one of Philanthropy Australia’s Policy Priorities for a More Giving Australia, released before the federal election earlier this year. 

There is a massive opportunity to grow charitable bequests in the coming decades – but it’s exactly that, an opportunity. In order to seize the opportunity we’ll need different groups to come together to map out a strategy for how this will happen. 

The Australian government would need to be part of this discussion, and I would encourage them to show leadership on this issue.

Otherwise, we may still see an uptick in charitable bequests, but nothing like the game-changing growth that could empower Australian charities to make an even greater contribution to addressing disadvantage, protecting the environment and fostering our culture, to name just three areas where charities making a big difference in our society.

And that would be a missed opportunity.