What happens when a tiny cottage hospital learns it is to benefit from a massive legacy? Danny Lee went to Cromer, Norfolk, to find out

Head north of Norwich for some 20 miles to the part of the Norfolk coast divided from Lincolnshire by the Wash and you will find Cromer (population 7,200).

The coastal resort and former fishing centre famous for its crabs is like a town from some imagined 1950s childhood.

The pier, celebrating its centenary this year, still offers summer shows, and the shops sell rock, fudge and racy postcards.

Visitors to one beachside restaurant who ask for the lavatory are handed a key and directed to a cubicle on the roof.

So when news broke last July of an£11m gift from a local widow to Cromer Hospital, the town was stunned.

The source of this legacy was even more of a surprise. Sagle Bernstein lived in a flat in a back street not far from the town centre and died in a local nursing home last May, aged 82. After news of the legacy broke, neighbours described a well-dressed, glamorous but unassuming woman who liked crosswords and painting.

'She was somewhat of a recluse, but she was a lovely and gentle lady, ' her cousin, Iris Reynolds, says.

Babs Hitching, a neighbour who still lives in Richmond Court Gardens where Mrs Bernstein shared a flat with her sister, Muriel Thoms, says: 'She was a very kind lady who gave the money to the hospital because she was so impressed by the treatment given to her sister. She was quite a private lady, who did not have many visitors.Her sister and I had the same birthday.'

Nigel Unsworth, the executor of Mrs Bernstein's will, knew her for seven years, going back to when he was her bank manager. 'She appointed me personally shortly after I left the bank in 1998, and I knew then that it would be a sizeable estate, ' he says, adding that it was still quite a shock when it came to dealing with the will. She was very unostentatious, and that is one reason why the legacy was such as surprise to most people.' The£12m estate included paintings and jewellery, sold through Christie's for£1m. The remainder was principally cash in the bank.

Other beneficiaries from the estate included Addenbrooke's Hospital, Cambridge, various Jewish causes, Cromer lifeboat and the ambulance service, which now has a rapid-call car called the Bernstein Response Unit.

Exactly where the wealth came from no one is sure, but Mrs Bernstein lived in the US for many years with her husband William, who had property interests. The Eastern Daily Press records that William Bernstein bought a Spitfire fighter plane in 1941 and emblazoned his wife's name on its side.

When he died in in 1993, she moved to the Richmond Court double flat with her sister Muriel, who died in 1998, aged 75, after a long period of daycare cancer treatment at Cromer Hospital.

Mrs Bernstein was touched by the dedication of the staff at the hospital, and the experience was to last in her memory until she died two years later, after a short stay in a nursing home.Her body was flown back to Miami to be buried beside that of her husband.

Rodney Stout, 65, lives between Richmond Court and Cromer Hospital and has been in the area for 25 years. 'Everyone round here was stunned to discover that there was someone so rich living in our midst, ' he says. Like many others, he was concerned that there might be plans to close the town's hospital. 'Now the managers have no choice but to keep it open, ' he says, This combination of delight, wonder and newfound confidence in a much-loved institution is echoed by Daisy Kent, 28, who lives round the corner from Mrs Bernstein's former home. 'Her gift restores faith in human nature, ' she says. 'It means the wishes of locals will have to be taken into account.'

And Cromer-born Keith Foster, 66, agrees. 'The hospital is great and so are its staff, and I am pleased for them as well as for us.'

But what is the real impact of such a massive legacy on a 30-bed cottage hospital, and how does such a windfall affect service planning for the area?

David Prior, who was then Conservative MP for North Norfolk, assured the House of Commons last March that Mrs Bernstein's 'fantastically generous legacy'would not be used to replace NHS funds or siphoned away.He sees the unit as a symbol of the NHS, with 'outstanding and caring staff supported by the community, but working with substandard facilities'.

Rather, he said, the legacy would be used to ally the 'nursing, clinical, caring and community traditions of Cromer Hospital to world-class facilities, operations and resources'. The redeveloped hospital would provide ophthalmology, dermatology, endoscopy, cardiology, diagnostics, maternity services, diabetic and stroke care, renal dialysis, minor surgery and post-operative cancer treatment. A business case would be forthcoming from North Norfolk primary care group and Norfolk and Norwich University Hospital trust by the end of March, he told the Commons.

But no business case has yet been drawn up.

Malcolm Stamp is chief executive of Norfolk and Norwich University Hospital trust, which covers Cromer.He has overseen the controversial private finance initiative hospital development at Norwich and says: 'We were over the moon that someone wanted to give us that amount of money as a reflection of their appreciation of the care of a relative.' But he gives no details of the redevelopment.

Since 1995 the trust had been hoping to redevelop the hospital, and although all the usual administrative processes will still apply, the gift certainly helps. 'This money will make the building of the hospital quicker and smoother, ' he says, and stresses that the cash will be applied over and above the normal NHS budget.

'We didn't know that we would get approval from the NHS capital budget for our ideas, so this money makes our plans a lot more secure.'He says the trust will put a strategic outline plan to Eastern regional office within the next few months, with a decision due by the end of the year.

'Coincidentally, the legacy is almost the exact amount needed to replace the Cromer facility, including standard NHS equipment.We have no need to go down the PFI route now that we have this money, though it is a standard requirement to consider private finance as against public finance on all new developments, ' he says.

Meanwhile, local people remain concerned that the hospital should receive the entire bequest.

Diana Clarke, chief executive of North Norfolk PCG, says: 'We are working with the trust to make sure this money doesn't disappear into a hole. But it is too early to say exactly how it will be used.'

Obeying the terms of the will, which states that the gift must be used for Cromer Hospital and its patients, is a key factor. 'It was the clear intention from Mrs Bernstein that the money be used in addition to services provided by the NHS, and we need to be very careful to fulfil her wishes.'

In the context of an NHS budget of£48.8bn per year, the annual£63m given in legacies to various trusts may seem insignificant. But for some smaller hospitals this can be the difference between staying open and closing. In areas such as Cromer, other forms of local fundraising may be limited because of the small population.

Mary Northway, chair of the Friends of Cromer Hospital, says: 'The most important point is to get things right, and if that takes time then it is worth it.

At the moment the use of the gift is in great debate, but it will mean a lot can be done for patients.'

North Norfolk MP Norman Lamb, who won the seat for the Liberal Democrats in June, is keeping a close eye on the situation. 'I want to make sure that everyone, including the PCG that may be part of the new hospital, feels positive about the proposals.

'Malcolm Stamp has given me his unequivocal commitment that there will be no tampering with the money and that it will be spent as it should. But it is important something is agreed soon.'

Held in great affection: Cromer Hospital Cromer Hospital, built in 1932, is a white two-storey building next to the football club, about 1km from the seafront.Previous benefactors are listed on wooden panels next to the front door, and Sagle Bernstein's name may soon be added.

Down the corridor there is a display of 10 of her paintings.This is a requirement of the will, which will be adhered to in any new building.There are two black tribal paintings, several still-life scenes and, in the centre, a handsome image of her sister.

Nearby, a large plaque declares: 'This foundation stone was laid by Constance Lady Battersea on 16 October 1930', and the hospital was 'opened by Evelyn Lady Suffield'.

But its history goes back to the first Cromer Cottage Hospital in 1866, which was extended in 1888.Then, local archives show, a matron's starting salary was£20 a year.It is easy to see why so many people have such a great affection for the place Law of increasing returns: leaving money to charity 'Nothing can be said to be certain, except death and taxes, 'said Benjamin Franklin.

There is in fact a third fact of life that cannot be ignored: the law.Ignoring sensible precautions may render any gift worthless.

Richard Jacob, partner at Eversheds, which acted for Mrs Bernstein's estate, explains: 'Mrs Bernstein gave money to Cromer Hospital and it was fairly straightforward.Sadly, that can be said of only a few of these types of cases.'

An example of the type of complication that can arise came in 2000 with a gift to Great Ormond Street.The deceased, Lily Morris, who had worked as a nurse at the hospital, had changed her will to cut out the gift just before she died.The hospital claimed there was undue influence because the alteration had been made while she was of unsound mind.The case needed to be resolved in the High Court, where the judge agreed with the hospital and ordered the£200,000 bequest to go ahead.

A lack of foresight may also be the culprit.'Sometimes it can be embarrassing for hospitals if a person leaves money to be used to buy specific equipment for some particular purpose, because the managers may not need that item.They may not need another kidney dialysis machine, for example, and then the gift is wasted, even though there may be a dire need for the money in some other department.'

People also often make the mistake of giving money simply to cancer care, for example, which creates difficulties in determining who should be entitled to receive the bequest.Often, rather than waste money and time on a costly court battle to sort out confusion over which of two or more charities should benefit, they will agree to split the funds.

The best policy for anyone making a will is to name an institution and perhaps quote the charity number, but not to be specific about the use the money should be put to.

It is always worth pointing out to anyone thinking of making a legacy to a good cause that there is no inheritance tax on gifts to charities or heritage bodies.If they give a chunk of their estate to charity then that will reduce the value of their remaining estate for tax purposes.

If the institution no longer exists at the date of death, the attorney general can be asked to give a direction that the gift can go to another beneficiary.

That is rich: Great Ormond Street and other hospital bequests The most well-known hospital legacy is JM Barrie's gift to Great Ormond Street Children's Hospital of the royalties for Peter Pan.But no-one knows how much this is worth.Spokesman Steven Cox explains: 'With JM Barrie, we are specifically told in his will not to say how much it is worth.'

The hospital thought it might lose the royalties when the copyright on Peter Pan was coming to an end in the 1980s, but in 1988 former prime minister Lord Callaghan introduced an amendment to the updated copyright act whereby the copyright of Peter Pan was assigned to the hospital in perpetuity.

Trusts cannot use fundraised income from bequests or gifts to substitute for NHS funding, so it is generally used for equipment, research, family and staff support and new buildings, but not core NHS activities such as hiring staff.

In all, Great Ormond Street receives about£4m in legacies each year from hundreds of donors, out of a total income of£12m.Coping with the irregular nature of gifts does not create difficulties.'We have a three-year rolling plan so that it is not problematic dealing with years when we get fewer legacies than we expect, 'says Mr Cox.'You do, however, need to be relatively conservative in planning.

'It is important to remember that we would get new equipment or buildings at some point under NHS funding, but if we buy them with fundraising, then we get them quicker.'

Legacies, as in Mrs Bernstein's case, are often motivated by loss.In 1999, executors for the late Octav Botnar, founder and head of Nissan UK, handed over a further£6m as the most recent gift to Great Ormond Street in a series of donations started when he was alive, and worth a total of£19m.

Another new building bearing the name of his daughter Camelia, who died aged 20 in a car accident in 1972, will be opened.Earlier donations paid for the building of pathology laboratories named after Camelia.

Donations from the living, totalling£162m per year for the NHS, have similar roots to those made in wills.In 2000, Hong Kong billionaire Michael Kadoorie,58, one of the world's richest men, gave£2.6m to the John Radcliffe Hospital in Oxford in gratitude for the care he received when surgeons there rebuilt his pelvis after a car crash.

David Brann, chair of the Institute of Charity Fundraising Managers legacy promotion campaign, puts this generosity in perspective.'The total amount in legacies given per annum is£1.2-1.5bn.Most goes to the top 5,000 charities, and legacies represent about one-third of the income of the top 500 charities.'

The Royal National Lifeboat Institution is the biggest single beneficiary, but cancer charities, if grouped together, receive more.

Medical charities overall benefit most from legacies.

Of wills that go to probate - estates worth more than£5,000 - only 13 per cent contain charitable bequest.'This is quite low, 'says Mr Brann.'So we are planning a campaign for people to leave more legacies to charity.Apart from the altruism, there is an inheritance tax benefit with 40 per cent of the tax being given back, in effect, by the taxman.'

It is not that people are mean.When asked, people who made no charity gift in their wills cite apathy as the reason.