Media Briefings

CHARITABLE BEQUESTS: New UK evidence on people’s wealth at death and what they want to happen to it

  • Published Date: October 2017

New research published in the October 2017 issue of the Economic Journal provides some of the most detailed evidence about people in the UK leaving money to charity in their wills when they die. Among the findings of the study by Tony Atkinson, Peter Backus and John Micklewright:

• Most people don’t have much of anything to leave to anyone. In Scotland, for example, only about 45% of people die with wealth of at least £5,000.

• For people with wealth of at least £5,000, the probability that they had prepared a will rises with the size of their estate.

• The proportion of people with wills who make a charitable bequest rises with the size of the estate: from 10% for the smallest estates to 50% for the largest of over £3 million.

• People with estates worth more than £500,000 are just as likely to leave a bequest to an animal charity, but they are nearly five times more likely to leave a bequest to an education charity.

• Making charitable bequests deductible from the taxable estate is an effective incentive, increasing the probability that someone leaves money to a charity by about two percentage points – a big effect.

More…

The researchers note that the act of leaving money to a charity in a will is not all that well understood. After all, it is perhaps curious that a person making a bequest to a charity does so at all as they are not alive to see their gift put to work. Yet on occasion we read newspaper reports about large sums of money being left to one charity or another. And posthumous donations are a major source of income for UK charities: £2.5 billion in 2014/15.

Moreover, bequeathing to charity is a behaviour promoted by governments through tax incentives. But surprisingly little is known about how people bequeath to charity.

Most previous studies of charitable bequests have been based on information about only the very richest people. In contrast, the new study analyses data on every will that went through probate in a year. The results reveal a lot about wealth at death and charitable behaviour.

The authors first outline the steps required for a charitable bequest to be received by a charity: first, a person must have sufficient assets in their estate at the time of their death to make any such bequest viable; second, they must have prepared a will; and third, in that will, they must have made a charitable bequest.

Yet even these steps are not sufficient. Many charitable bequests are ‘conditional’, which means that they are only activated if certain conditions are met, one being that they are pre-deceased by a spouse. Alternatively, people can make an ‘absolute’ bequest, making receipt by the charity much more likely.

Another advantage of the data analysed in this study is that it is possible to observe ‘unrealised charitable intent’, that is, conditional bequests that were made but not realised.

A perhaps striking finding is that only about 45% of people die with a ‘significant’ amount of wealth, at least £5,000. This is the case at least for Scotland, where the availability of more detailed data allows for such a figure to be calculated.

This is not to say that 55% of, in this case, Scots live and die in penury. These people may have given away wealth before passing away or they may have spent it on care as they grew older. It is nevertheless interesting that the results suggest that most people don’t have much of anything to leave to anyone.

The researchers also find that conditional on having ‘significant’ wealth at the time of one’s death, the probability that the person had prepared a will rises, as might be expected, with the size of their estate.

The proportion of people with wills who make a charitable bequest also rises with the size of the estate, but must less dramatically than testacy: from 10% for the smallest estates in the data to 50% for the largest of over £3 million.

About 42% of millionaires leave anything to charity when they die. The wealthy give to more causes, spreading their charitable bequests across charities working in different areas of need. While the wealthy (those with estates worth more than £500,000) are just as likely as anyone else to leave a bequest to an animal charity, they are nearly five times more likely to leave a bequest to an education charity.

Inheritance tax creates an incentive for people to leave to charity by making any bequest deductible from the taxable estate. The study finds evidence that this incentive does actually work, increasing the probability that someone leaves a charitable bequest by about two percentage points. This may seem like a small effect, but the implied elasticity is about 0.3, which, in the realm of tax effects, is significant.

ENDS


Notes for editors: ‘Charitable Bequests and Wealth at Death’ by Anthony B Atkinson, Peter G Backus and John Micklewright is published in the October 2017 issue of the Economic Journal.

The late Tony Atkinson was at Nuffield College, Oxford, and the London School of Economics. Peter Backus is at the University of Manchester. John Micklewright is at University College London.

For further information: contact Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh); or Peter Backus via email: peter.backus@manchester.ac.uk (Twitter: @Awesomnomics).