We are once again grateful to bring you a guest blog post from Lauren Janus of Thoughtful Philanthropy. This time she explores some of the reasons you may consider setting up a charitable foundation through analysis of the potential challenges and benefits.
Should I start a charitable foundation?
Lauren Janus, Thoughtful Philanthropy
If you’re asking yourself this question, you are likely:
- In a very comfortable situation financially.
- Driven to make the world a better place by giving away a portion of your wealth.
First off, well done to you. According to the Association of Charitable Foundations, personal and family philanthropy through foundations grew by nearly 20% between 2014/15 and 2015/16. So you’re not alone in wanting to use your wealth to act on your charitable passions—whatever they are.
But is a charitable foundation really the best choice for you? Here are some of the downsides of starting one:
- They take time and money to set up. Charitable foundations need to be registered with the Charity Commission and then submit annual reports. You’ll need to hire a professional to help you, and this can run into the thousands of pounds.
- Your giving is on public view. Because your foundation will be registered with the Charity Commission, its activities will be viewable by the general public. If you’re used to giving anonymously, this won’t be as easy with a foundation. Furthermore, many charities regularly solicit foundations for donations, meaning you could be asked for money by a lot more people.
- They require on-going work…and decisions. Running your own foundation could become a significant drain on your time. Some people welcome the administrative work and the decisions about things like who to name as trustees and what guidelines to use for the foundation’s giving. But for others it’s a real burden.
If this all sounds like too much, don’t despair. Another option is a Donor Advised Fund, or DAF.
DAF’s are very popular in the US, and are increasingly used here in the UK by people who want a straight-forward, tax-efficient way to give. Here are some of the advantages:
- They’re very easy to set-up and manage. A growing number of charities and for-profit organisations are offering DAFs, which are essentially charitable giving accounts. Once you’ve set yours up (usually online) and added funds, that money becomes the property of the DAF and must be used for charitable giving. You get the tax relief from your gift to the DAF straight away, but you can take your time deciding which charities to gift to.
- They can help maintain your privacy. When you donate to a charity through your DAF, the money comes from your DAF, not from you. So giving anonymously very much still an option.
- They can be part of a family giving strategy. Many people choose to establish charitable foundations because they want to involve younger generations in family philanthropy. It’s true that charitable foundations can be named for a family or loved one (“The Stewart Family Foundation,” for example), but as described above, they’re also a fair amount of work. Children and younger adults can still be involved in family giving through a DAF, although less formally. Families can research issues and pick charities they want to support together. DAFs can even be passed down in wills through some basic estate planning.
Before jumping into the process of starting a charitable foundation, ask yourself a few questions about how you want to structure your giving. In many cases, a charitable foundation will be the right choice for you and your family. Just remember that you have options, including Donor Advised Funds.
Whatever you decide, be assured that your first decision—to make charitable giving a priority in your life—is one that you are unlikely to regret.