Our
Clients

Financial
Planning

Investment
Philosophy

About
WealthFlow

Latest
Comment

Contact

Our
Clients

Financial
Planning

Investment
Philosophy

About
WealthFlow

Latest
Comment

Contact

Our
Clients

Financial
Planning

Investment
Philosophy

About
WealthFlow

Latest
Comment

Contact

3rd
Nov
2023

New UK Philanthropy – Donor Advised Funds 

This blog was written by Tom Murray (tom.murray@charityflow.co.uk) of CharityFlow.

In the USA, philanthropists have channelled giving through vehicles known as Donor Advised Funds. They are also now one of the fastest growing types of charitable fund in the UK. What are they, and why don’t we use them more often?

The reason that most people get involved in philanthropy is to be able to focus on making the world a better place and advancing the philanthropic mission of the fund that they are engaged with. They do not do it to get bogged down in governance, but good governance is vital if philanthropy is to be effective.

The burden of running grant-making charities continues to grow, with trustees’ precious time increasingly being taken up by regulatory compliance and more of the trust’s limited resources being spent on non-charitable activities such as legal, secretarial, audit and accounting costs.

There are also increased fiduciary duties on charity trustees with all the legal jeopardy that entails.

Setting up new stand-alone grant-making trusts is expensive, and it is taking much longer to get recognition as a charity from either the Charity Commission or OSCR, without which none of the tax advantages of being a charity accrue.

However, there is a way to reduce the governance burden and the regulatory compliance costs. It is worth both trustees of existing charities and philanthropists wanting to set up grant-giving charities to consider.

The answer may be to use a Donor Advised Fund (a DAF).

What exactly are they?

A DAF is a stand-alone charitable fund under the umbrella of a larger fund of funds. It is a registered charity and manages the fund on behalf of either the donor or, in the case of a charitable trust which has become a DAF, on behalf of its trustees.

As a minimum, the umbrella fund takes care of all accounting and audit compliance with all the advantages and benefits that their scale can add, resulting in significant cost savings. They ensure the fund operates legally, protecting the trustees from legal threats.

In some cases, the DAF operators can also take on administration of the grant-making process, further reducing administrative costs.

The trustees retain control over the mission and strategic direction of the DAF and how funds are distributed. They can also maintain control over how the DAF is invested.

Why are they so effective?

Within reason, the DAF can be called whatever you want and transferring an existing trust to a DAF doesn’t necessitate changing its name. Provided the current trust’s constitution allows, converting to a DAF is very simple.

DAFs can be set up very quickly. The umbrella charity already exists, so all that is needed is for its trustees to be satisfied that your fund meets their criteria and the transfer can be made. This can be especially useful if you want to transfer a part of a business you are about to sell to a family charitable trust. Setting up such a trust from scratch can take months, and without charitable status, CGT will be payable on the shares in the trust. Setting up a DAF and transferring shares to it can happen in a matter of days, so the shares that have been transferred will qualify for CGT exemption.

Another feature of DAFs that appeals to some donors is that any grants made by the DAF can be anonymous. The umbrella body is the registered charity, not the DAF itself, so there isn’t any public record of who set up the fund. This possibility isn’t open to stand-alone charities.

A DAF has no maximum or, perhaps more importantly, minimum size because audit and accounting fees are shared across the whole of the umbrella fund, so DAFs are ideal for smaller sums.

This feature can make DAFs ideal vehicles for annual grant giving. For example, a business must donate 10% of its profits annually to charity. If it does this to its own DAF, it can engage much more effectively with the causes it believes in and make multi-year commitments to ongoing programmes. It is much better for the donor and more effective for the recipient.

Finding the right DAF provider that suits you is important. The charitable sectors you want to engage with and the amounts you wish to give are factors. Some expect you to use their investment services; if you are happy with this, their costs may be even lower. Others give you much flexibility, allowing you to integrate your charitable activities with the rest of your wealth planning.

So, in conclusion, DAFs offer significant cost savings. For example, a stand-alone grant-giving charity distributing £50,000pa could easily be facing audit and administrative costs of 10-15% of that sum, money that could otherwise be doing good. Using a DAF, it might be possible to reduce this cost hugely.

DAFs offer greater flexibility, legal comfort, easier administration and simpler reporting requirements whilst retaining all the advantages of stand-alone grant-giving charities.

Duncan R Glassey
Founder & Director – WealthFlow
duncan.glassey@wealthflow.com

 

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

News to your inbox

Register to receive occasional updates from WealthFlow to your inbox.

WealthFlow will only use the information you provide in this form to contact you and no other purpose. Please read our privacy policy.

© 2024 WealthFlow Group Limited : All Rights Reserved | Privacy | Cookies Policy

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.

© 2024 WealthFlow Group Limited
All Rights Reserved | Privacy | Cookies Policy

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.