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The ability to budget and forecast legacy income is an essential part of your charity’s financial planning. So, how is this done and what are the key issues and risks to consider?

Firstly, it is important to point out that forecasting and budgeting legacy income is notoriously difficult to predict with accuracy, especially when dealing with small data samples. Even the biggest legacy earning charities with the most sophisticated of resources aren’t able to forecast to 100% accuracy. Whereas, for example, a charity could fairly reasonably predict when and how much income can be achieved from a direct mail appeal, both the timing of legacy income, and the amount due, can alter drastically due to a number of factors.

Forecasting is done by assessing the income which you are expecting from your current legacies, and also estimating what you think you will receive from estates of which you have not yet been notified, in the short, medium and long-term.

You will need to be aware of, and able to analyse, your current legacy data, including estimated values and anticipated distribution dates. In addition, what historical data do you hold? On the whole, what does this information tell you about any trends and patterns relating to legacy giving to your charity? How might this project into the future?

Estimating income in relation to gifts of which you have not yet been advised is – obviously – a bit more difficult, and this is when being able to analyse your historical data is useful. For example, if you are seeing a year-on-year percentage increase in the number of pecuniary gifts, and you also know the average value of a pecuniary gift received, it would be reasonable – unless other factors suggest otherwise – to assume that the trend will continue, and forecast accordingly. A similar calculation can be made in terms of your medium-sized residuary gifts.

Analysing your existing data is useful because it ensures your forecasting is being based on real information, however, clearly there is still an element of the unknown. For this reason, it is best to keep your forecasting conservative, with some margin for error built in, and to make regular re-evaluations, and adjust if necessary.

Holding, analysing and building up your data analysis year on year, will enable you to make better and more informed decisions regarding your budgeting and forecasting processes.

For longer term forecasts, it is important to look at the bigger picture. What are the trends in legacy giving, and what factors might affect it? Some factors are sociological, and some are economic – for example, what impact will the recent Brexit vote have?

Sharon Wheeler

Want to know more

For more information about the ways we could support your team please contact Sharon Wheeler