Wednesday, 13 November 2013

18. NZ charities that receive bequest income

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Many small charities struggle to find regular donation income.  Then, if they are lucky, they receive a large bequest and they never look back.  For the first time they put in place initiatives that they couldn't dream of doing before.
Bequests can be game-changers for many charities.  It's like winning lotto - especially if there are no conditions attached and the charity can use the money as it sees fit.

According to the most recent returns filed by registered New Zealand charities (which include a mixture of 2012 and 2013 financial years), 798 or 3% of total charities received bequests totaling $176 million.*  That is an average of $221,000 for each of the lucky 798 charities.   So is it easy money, or are there lessons hidden in the data on the charities register?


If you would like your charity to join the 3% of charities which receive bequests, here are 10 helpful hints based on returns filed with the New Zealand charities regulator:

1. Be an incorporated association or a trust.  About two thirds of charities which recorded bequests in their most recent return fell into these two categories.  Don't be a limited liability company - only six received bequests last year.

2. It helps to have a longstanding history and name recognition.

3. Don't be greedy and insist that all the money from an estate goes to your charity.  Just under half of charities that received bequests reported receiving $10,000 or less.

4. You're likely to receive more bequests if you operate in the health sector, followed by the religious sector, disability sector or education / training / research sector.  If you operate in the sport / recreation sector your probability of receiving bequests is slim.

5. If you are going to receive a bequest you will already have attracted donors who provide you with regular donation income (unless your charity is going to be set up with a bequest).

6. Don't rely on regularly receiving bequests as your only source of income.  Only one charity has managed to do that so far.

7. Don't assume New Zealanders are actively looking for new charities to leave their money to.  Over the last four years the number of registered charities receiving bequests has only grown by 1.8% per annum.  So you are going to have to work hard to stand out from the crowd.

8.  Remember that bequests can be challenged in the courts.  Don't recognise bequest income until you've received the cash or the donated assets have come under your control.

9. If you employ one or more paid staff you're more likely to receive a bequest and the value of bequests you do receive will be larger.  However all is not lost if you just rely on paid volunteers - these charities accounted for 26% of total charities that received bequests, and they received 7% of the total amount of bequests.

10. You're mostly likely to get a bequest if your postal address is in Auckland, although if your postal address is in Wellington your average total bequests will be larger.  If your postal address is in Malborough or Darfield you might get something too, though don't expect too much.

The details

Since 2008, the amount of bequest income received by New Zealand registered charities has been published on the charities register.  That puts New Zealand one step ahead of Australia in terms of providing an insight into bequests.  Across the Tasman, registered charities will only start reporting their income to the charities regulator from 2014.  Even then, they will just report bequest income as a combined total of bequest and donation income, and Basic Religious Charities will be exempt from reporting requirements altogether.

For accounting purposes, bequest income is not usually recognised until cash is received by a charity, or when donated assets come under control of a charity and can be reliably measured. This avoids problems that could arise if bequest income is recognised earlier and is subsequently contested by other estate claimants. 

Four-year trends

As shown in Graph A, the trend in New Zealand over the last four complete years from 2009 to 2012 has been an average increase of 7.3% per annum in the value of bequests received by registered charities.  The amount bequested to registered charities rose from $114m in 2009 to $139m in 2012.  However, the number of registered charities receiving bequests has not increased at a similar rate, rising only 1.8% per annum from 706 in 2009 to 744 in 2012.

Graph A


The same charities tend to benefit the most from bequests.  Just ten charities receive about one third of the total value of bequests each year. Over the four years 2009-2012 the most successful six charities to obtain bequests have consistently been:

1. Royal New Zealand Foundation Of The Blind

2. The Salvation Army New Zealand Group

3. The Priory In New Zealand of the Most Venerable Order of the Hospital of St John of Jerusalem

4. Cancer Society Of New Zealand Auckland Division Incorporated

5. National Heart Foundation Of New Zealand

6. The Society for the Prevention of Cruelty to Animals Auckland Incorporated

It is not surprising that these successful charities have a longstanding history and are well known to the New Zealand public.  Presumably the average person who leaves money to a charity in their will wants to be confident it is going to a charity that has proven itself to be a safe pair of hands with money and can be relied on to make a positive difference in the community.

 Size of bequests

With just 10 charities accounting for one third of bequest income, this suggests many charities receive quite small amounts of bequests.  In fact, as shown in Graph B, 12% of charities that receive bequests actually receive less than $1,000.   About 1/3rd receive total bequests of between $1,000 and $10,000.  And at the other end of the scale, about 1/4 of charities that receive bequests, receive total bequests of $100,000 or more.  (This graph includes returns for the 30 deregistered charities and it also includes the bequest of $44m made to the Joyce Fisher Charitable Trust).

Graph B

Popular sectors

Based on all returns filed since the NZ Charities Regulator began, 21% of the value of all bequests went to the health sector, followed by 16% to the religious sector, 13% to the disability sector and 13% to the education / training / research sector.  The three sectors that received the smallest proportion of the value of bequests, all less than 1%, were the accommodation/housing sector, emergency/disaster relief sector, and sport/recreation sector.  The sector breakdown, along with the names of charities in each sector which received the highest bequest income, are shown in Graph C and Table I. 

Graph C

Table I

Legal structures

The most common entity type to receive a bequest was incorporated associations (293 or 37% of the 798 bequest-receiving charities).  They were followed by trusts (180 or 23%),  unincorporated churches or parishes (75 or 9%), foundations (49 or 6%), committees of St John (46 or 6%), charitable trusts (43 or 5%), unincorporated societies (15 or 2%), unincorporated associations (9), diocese (8),  limited liability companies (6), unincorporated institutes (4), fire brigades (4), unincorporated centres (4) and estates (1).  61 charities did not give any indication of their entity type.  

 Bequests vs donations

Normally you might expect that charities which receive bequests will also receive donations.  In fact only 666 or 83% of the 798 charities in receipt of bequests also received donation income.  That left 132 charities where members of the public did not donate money to them when they were alive, but left $40m to them when the passed away.  However that is not as unusual as you may think.  Most of those charities had only just been established and the bequest was the reason they existed.  Others transferred legacy funds from one entity to another (usually into a Foundation).  For example the IHC transferred $14m of accumulated legacy funds from IHC Incorporated to the IHC Foundation in 2013. 

Paid staff and volunteers

Out of the 798 charities which received bequests in their last financial year, 529 (66%) employed one or more paid staff; 204 (26%) just relied on volunteers, and 65 (8%) recorded no paid or volunteer staff at all.  Based on the total of $176m of bequests received in the most recent returns, $145m or 82% of this amount of bequests went to charities that employed one or more staff, $12m or 7% went to charities which just relied on volunteers, and $19m or 11% went to charities which recorded no paid or volunteer staff.

Geographic location of bequests

Using the postal addresses supplied to the charity regulator, Auckland charities accounted for 176 or 22% of the 798 total charities that received bequests, receiving $71m or 40% of the $176m total bequests.  They were followed by charities in Christchurch which made up 124 or 16% of bequest charities (receiving $18m or 10% of total bequests).  Then came Wellington with 110 or 14% of charities (receiving $48m or 27% of total bequests).  Out of the three cities, Wellington charities received the highest total bequests on average - $436k, compared to $403k in Auckland and $145k in Christchurch. Other towns and cities with individual bequests over $1m were Gisborne, Hamilton, Havelock North, Lower Hutt, Manukau, North Shore and Tauranga. Some of the most modest bequest locations included Marlborough (total bequests were $10) and Darfield (total bequests were $85).

Unusual charities

In any piece of analysis on the charities register it is possible to find 'unusual' charities.  Analysis of bequest income is no exception.  For example, the Kingdom Legacy Trust is the only charity that has recorded bequests as its only source of revenue for the last five years ($1.3m, $176k, $242k, $155k and $242k).  It also has significant transactions with related parties. The trust's officers are Jasu and Jagdish Govind and Graeme Skeates (a senior partner in Skeates Law Ltd).   Back in 2009 it had received loans from the Jasu Govind family trust and the Jagdish Govind family trust, and lent this money at a nil interest rate to NZ Nail Industries, a company also owned by Jasu and Jagdish Govind and Graeme Skeates. In its most recent return the trust has used its bequest income to pay off the debt to the family trusts and has total assets of $4.4m now invested in land in Epsom and Kaeo.  Although the charity reports making charitable grants for religious purposes of $103k-$186k each year and says 10% is spent overseas, it is unclear who received the grants or whether there was any personal benefit from the related party transactions.  Nor is there any explanation why people are making bequests to this charity each year.


* 829 charities recorded bequest income in their most recently filed return to the regulator.  However, unless otherwise stated, this blog analyses results from 798 charities.  The 798 total excludes 30 deregistered charities and it excludes the Joyce Fisher Charitable Trust.  The latter received a bequest of $44m in the year ended 31/03/2012.  This trust operates in the fundraising sector and the bequest has been excluded on the basis that its bequest is so big it skews all of the sector results.  

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