Thinking about philanthropy? Think about these things too

This article previously appeared in The Business.

Philanthropy is admirable, and usually also personally rewarding, but it needs to be carefully planned. Here are the main questions to ask yourself at an early stage. The answers affect many other decisions, including what legal entity is most appropriate.

How much time and focus can you devote to philanthropy?

Running a charity comes with significant regulatory obligations on top of all the usual governance, admin and financial management. Do you want to be heavily involved in this yourself, or leave it to others? And remember that another key part of the process – exploring projects that you could fund, assessing them and deciding which to proceed with – while very satisfying for many people, can also take up a considerable amount of time and effort.

Is your priority anonymity or control?

Recent legal changes make it much harder to have both. The names of charity trustees must now be made publicly available (with some strict exceptions) so it is now much more difficult to hold this role anonymously. However, if you choose not to be a trustee you will not have any legal right to be involved in management decisions.

What, exactly, do you want to achieve?

You probably already have some ideas about general areas that you’d like to support. You now need to develop a plan for exactly how that will work in practice. The most fundamental choice is whether you want to set up a trust, which then distributes funds to various other projects or charities; or would prefer to have your own single service charity with its own particular focus.

Where do you want to be active?

Key set-up decisions depend on whether you want to operate in Scotland, the rest of the UK, overseas, or a mixture. You want your trustees to be able to focus on achieving your philanthropic goals – not caught up in a regulatory quagmire.

Which tax benefits do you want to take advantage of?

Significant tax reliefs are available both to charitable donors and to recipients. Even if the tax advantages are not a main motivator for you, it’s worth making sure that you don’t miss easy ways to maximise the effects of your philanthropic giving.

If you are making donations in your will, are the trustees clear about your wishes?

Occasionally, people leave their charity a very significant sum without giving the trustees clear directions on what they should try to achieve. Without guidance, the trustees will do their best to make the right decisions and to imagine what you would have wanted to occur. But that is very difficult, especially when the sums are very large, because while the trustees are legally obliged to use the money for charitable purposes that still leaves a dauntingly wide array of options. There’s nothing better than clear communication before it’s too late.

We often ask our philanthropy clients about the causes that they are passionate about, so that there is some record of this if they don’t leave more detailed instructions.

The answers are different every time

The lawyers in our Private Wealth and Tax team are expert in all these issues, but any advice on how to arrange someone’s philanthropic activity has to be based on a detailed understanding of their particular goals and circumstances. If you’re contemplating getting involved in philanthropy and would like to have a more detailed discussion, please do get in touch.

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