The views expressed in this article are those of the author and reflect the point of view of Chapel & York. The article was provided by Chapel & York to the Beacon Gainer private client advisory services group.
Giving away money is simple. Write a cheque. Make a bank transfer. Put cash in a tin or collection box. Go to a ball or fundraising event.
However, for the philanthropist, giving through a charitable vehicle whether a bespoke one or as part of an intermediary organisation is vital in order to provide appropriate ongoing philanthropic engagement and visibility.
It is also important for those moving to another country or region. There is a subtle difference between being a wealthy donor and a philanthropist. The first can attract envy and be an outsider who merely turns up at things and gives money when asked but the latter is someone to be respected and admired for their charitable work. A proper philanthropic plan and implementation can ease the transition into a new place for an individual, a family and even a company. Corporations have long used philanthropy (Corporate Social Responsibility) to achieve business ends.
That ongoing philanthropic presence can mean either establishing a bespoke dedicated entity or having a Fund with an existing organisation through which to support charitable entities. Sometimes the country from which you are giving will help inform which is more appropriate, desirable or required but there are general considerations for those countries where both possibilities are available.
Having a Fund within an existing charitable organisation, usually called a Donor Advised Fund (DAF) because the donor can suggest donations from it, has become very popular over the past number of years – and for good reason. The main advantages are:
- You don’t have to pay for the legal establishment and management of a dedicated philanthropic entity;
- You can fund your DAF whenever you want to take advantage of tax or legal benefits when needed;
- The funds in your DAF are invested with other funds resulting in a larger pool which can attract better rates of return; spread risk across several investments; and leverage into various assets including impact investment vehicles.
There are also disadvantages which must be considered.
- Whilst your Fund can be named as you wish (with certain restrictions which may be placed by the underlying entity) the underlying entity is still part of the package and part of the philanthropic engagement because it is their charitable status, their Board and their administration which you are using;
- Because you are ‘riding on their bus’ you will need to follow their rules;
- Your reputation is dependent on the entity with which you have a DAF and you may have little ability to mitigate that risk.
Having your own dedicated philanthropic entity has its own advantages:
- You are completely in control of the entity;
- You do not have to keep a particular balance or follow any other rules imposed by the existing charity, including limiting who or where your charitable recipients are;
- Your philanthropic donations are not filtered through another organisation;
- You have no fees to pay to another organisation to host your Fund.
As with anything, there are also disadvantages:
- There are ongoing administrative, regulatory and legal requirements to keep your entity compliant in its country;
- The cost of maintaining an entity may be expensive;
- Your dedicated entity may have more legal restrictions in the country than one with a number of donors;
- The funds in the entity may have limitations or restrictions in its investment opportunities due to its size.
Which entity is more appropriate for a philanthropist to further their goals? The answer is part of the detailed and important discussion a donor must have with his or her advisors considering their interests, their goals, and the best way to achieve them.
Finally, neither entity may be the choice of the philanthropist. It may be that the donor establishes a charitable organisation which itself runs programmes and attracts other philanthropic funds rather than having a grantmaking body only.
Whatever decision is made, the result will be more funds which do good in the world which can never be a bad choice.