To mark Good Money Week on 19-25 October, advisers could discuss charitable giving with their clients and consider donor-advised funds as part of the usual financial planning process.
DAFs are popular in the US but are relatively new in the UK. They are essentially savings accounts that enable people to give money or other assets such as shares to their chosen charities without the high entry levels, expense and administrative burden of setting up their own charitable foundations.
Clients who want to support one charity or project through ad hoc donations would be better off donating directly to that organisation. But those who want to support several charities or projects a year, perhaps with regular donations, might find DAFs the easier option.
In the UK, DAFs are offered by banking firms such as UBS and C Hoare and Co but there are also a number of charities offering them. NPT-UK was set up last year to increase philanthropy in the UK through DAFs. It is affiliated to the National Philanthropic Trust in the UK, so its DAFs are tax-efficient in both the UK and the US.
The London Community Foundation, which tackles problems in London such as child poverty, homelessness and domestic violence, also provides DAFs and is building relationships specifically with advisers.
Private bank C Hoare and Co launched its DAF, the master charitable trust, in 2011. The company’s head of trustees Diviya Gosrani says that clients who are cash rich but time poor wanted a simpler way of giving to charity. “They didn’t want the administrative worries of setting up their own foundation, getting deeds drawn up, registering with the Charities Commission and with HMRC.”
Gosrani believes charitable giving should be part of advisers’ asset allocation discussions with their clients. “When you do a factfind for a client you could ask, have they got a will, what about philanthropy – how do they give now?”
One of the key attractions of donor-advised funds is they give the donor complete control over their donations. They also enable the donor to see the impact of their donations during their lifetime as opposed to deferred giving by leaving charitable donations in a will.
“Why wait until you die?” asks UBS Wealth Management executive director Graeme Price. “You don’t just have to leave money to charity in a will. People are living longer and are healthier for a lot longer – giving to charity should be talked about as part of a client’s life plans; it fits in with cashflow modelling. If you know how much money you need and there will be an amount left over, what are you going to do with the surplus?”
UBS set up its UK Donor-Advised Foundation to make charitable giving easier for its clients. UBS Wealth Management managing director David Rowe points out DAFs can be used by people who know exactly what charities to give to and those who need a bit of time and help in making these decisions. “We would provide the direction and the infrastructure; they can take the time they need to make the decisions but we do expect people to give the money away,” he says.
Value of advice
DAFs are tax-efficient in that gift aid can be claimed to the benefit of the charities and projects receiving the donations while donors can claim relief against high-rate tax on cash contributions or shares pregnant with gain.
The best timing for doing this will depend on an individual’s circumstances and this is where the value of advice comes in.
The London Community Foundation development director Lucinda Shaw says: “We welcome the involvement of advisers because we believe more people will be aware of the possibility of having a tailored philanthropy service. In the US, professional advisers see it as part of financial planning and I firmly believe people would like
to give more in the UK if they could do it in an engaging way.”
Shaw says The London Community Foundation can white label DAFs for advisers who do not want to move clients’ money out of their control or away from their existing manager. We can open an account with the donor’s investment manager so the donor moves some money into that account but it will stay with that investment manager. It has to be our account with that manager so we can claim gift aid,” she says. Shaw points out these accounts are set up as restricted funds for each donor, so only the donors and their advisers can use them.
NPT-UK chairman Eileen Heisman believes DAFs are a good way for advisers to build client relationships across the generations. “It’s important for advisers to start bringing in the next generation of clients,” she says. “You’ll see donor-advised funds more and more over the next few years.”