Charitable giving: Structuring your philanthropy

Charitable giving is a meaningful way for donors to support causes close to their heart and to leave a lasting legacy. Whether you are considering donating funds to charity during your lifetime, setting up your own charity or thinking about giving part of your estate to charity on your death, it is essential that you select the right approach at the outset. At Cripps, our charity and estate planning experts can help advise you and help you select the most appropriate form of structure for you to use to achieve your philanthropic goals. This could involve deciding to set up a specific form of new charity (either incorporated or unincorporated) or choosing to establish a simpler form of Donor-Advised Fund for these purposes.

Setting up a charity

It is vital to understand the various regulatory and governance requirements that are involved in running a charity at the outset. Trustees are directly responsible for effectively managing the activities of their charity and acting in its best interests at all times, so the role should be seen as an involved one, requiring the commitment of time, experience and resources to best support the work of the new charity. The Charity Commission oversees the conduct of charities and, once registered, will require the submission of annual accounts and trustee reports to allow it to monitor the ongoing conduct of the charity’s activities. We can guide you in considering all of these aspects as you decide how you would like to proceed.

There are several forms of charitable structures that could be used to achieve a donor’s objectives:

Charitable trusts

A charitable trust is a more traditional form of charity that is most commonly used for smaller grant making charities, rather than larger operational entities (e.g. those providing services, actively fundraising, operating internationally, holding significant assets, land or property, or those that will have employees or other aspects of the activities that might involve liability). It should be noted that charitable trusts do not generally provide the protection of limited liability for the trustees, meaning that the trustees may ultimately be held personally liable for any breach of the charitable trust’s obligations.

Charitable Incorporated Organisation (CIO)

A CIO provides the benefits of being an incorporated form of charitable entity with limited liability for trustees but without the dual registration requirements that apply to a charitable company (see below). This relatively new form of charitable structure is generally more suited to more medium-sized operational charities and also for grant making charities.

Charitable company limited by guarantee

Some charities, due to their specific objectives or activities, may need a corporate structure to best undertake operations. These types of company offer the same limitation of personal liability to trustees that are involved in a CIO and are also well understood by charitable donors.  They do however involve additional administrative requirements due to their dual registration with both Companies House and the Charity Commission and the resulting dual reporting requirements to each regulator. CIOs by contrast are only regulated by the Charity Commission.

Ultimately, the precise form of charity we recommend will very much depend on your specific circumstances and will be influenced by your philanthropic objectives and the activities that you envisage being undertaken by the new charity. Setting up a charity might not be appropriate for all clients – particularly if you are considering smaller scale grant making, in which case we are happy to advise as to other structures for you to consider, in the form of Donor-Advised Funds (or DAFs) or even direct grant making.

Donor-advised funds

An individual can choose to set up an account with a commercial DAF provider and then add funds to it over time. The DAF provider supplies a cost-effective platform to be used to then make grants to other charitable organisations which the individual wants to benefit. DAF accounts can generally be set up in much shorter timeframes than charitable structures and do not need to be registered with the Charity Commission.

The DAF provider handles all administration and compliance reporting for the donor, which frees a donor to focus on identifying donations that will maximise their impact. By way of example, the DAF provider generally conducts rigorous due diligence to ensure that grants are being made to legitimate charities, relieving the individual donor of this responsibility and ensuring that the underlying funds are being used appropriately.

DAFs generally provide immediate income tax relief for contributions and allow donors to recommend how grants are allocated over time, offering flexibility and ongoing involvement. However, DAFs do limit control over the funds, as in practice the DAF provider makes final grant decisions, which may not suit those seeking hands-on involvement in advancing their philanthropic aims. Additionally, administrative fees that are levied by the DAF provider will reduce the overall funds available for onward donation, making it important to weigh convenience against those controls and costs.

Integrating charitable giving into estate planning

Charitable giving in your Will can help to reduce your Inheritance Tax (IHT) liabilities whilst nevertheless ensuring that you can also advance your philanthropic aims. Under current IHT rules, broadly, leaving 10% or more of your estate to charity can reduce the rate of IHT payable on your remaining estate from 40% to 36%. This 10% contribution can be directed to specific charities, your own charity, your DAF, or be held in a charitable trust in your Will to be distributed at the discretion of your trustees. Such strategies ensure your philanthropic goals are met while optimising tax benefits.

How Cripps can help

We provide bespoke, tailored advice on structuring charitable giving and integrating philanthropy into estate planning to take advantage of IHT benefits and to maximise impact that you can achieve with your philanthropy. We also advise the full range of charities about all aspects of their ongoing governance and their activities and work hard with our clients so that they can advance their philanthropic objectives to the greatest extent possible.

Contact our charities and philanthropy team for more information.