Philanthropy Impact

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Are we giving supporters the right options to encourage planned giving?

Are we giving supporters the right options to encourage planned giving?

Expert opinion

There’s no doubt about it; we have a rich tradition of charitable giving and incredibly strong fundraising industry in the UK. And yet, I question whether we’re offering a sophisticated enough approach at the top end of the market that will encourage the public to identify and invest in their philanthropic goals.

As a recent transplant back to the UK from the US (where I was based for the past 12 years), it’s only natural to draw comparisons about how different the environment is for philanthropic structures and the types of conversation charities are having with their supporters. 
Admittedly, some of those differences are cultural; Americans are certainly more open when it comes to talking about charitable giving, tax planning and money more generally. Conversations around all these things does of course not only accelerate understanding but normalise behaviour, encouraging others to give and to claim the tax breaks they are entitled to. 
Such openness rarely comes naturally to us Brits, but if we want to accelerate the transition from ad hoc donations to more committed support or to create a truly philanthropic culture, there is more that we can learn from our American counterparts, particularly when it comes to developing a more planned approach to charitable giving. 
There aren’t many of us self-confessed charity tax geeks – but after three years on the IRS Advisory Committee on Tax Exempt Entities (ACT) in the US and now providing some input to the Tax Commission and the IoF’s Policy Advisory Board – it’s hard to avoid that label. And when looking at the current giving market in the UK and US, there are two things that strike me. The first is that there are many such tax structures and giving vehicles available to us in the UK. The second is that very few are aware of what they are or feel comfortable discussing them, professional advisers included.
Over and beyond standard tax-effective giving options (including Gift Aid, payroll giving and gifts of land, property and shares) or setting up a charity bank account, there are a range of foundations or investment linked giving models, all of which offer the opportunity to leverage tax paid. 
In the UK, people can of course establish a private foundation, although this comes with a heavy administrative requirement and is really best suited to those at the top of the individual giving market. A more feasible option for many is to make a gift to a donor-advised fund (DAF) or community foundation. The former allows people paying into the fund to receive immediate tax relief on their gifts and to recommend how charitable grants will be allocated. While community foundations enable people to pool their giving for good causes locally. 
Uptake for both these options is on the increase, as people opt for a more planned approach to their giving. But what hasn’t really been fully developed within the marketplace is charitable lead and remainder trusts (sometimes referred to as Charitable Remainder Gift) which really do have the potential to change people’s overarching approach, encouraging a more long-term approach to charitable giving and perhaps even more significantly, the opportunity to view philanthropy as an investment. 
How does a Charitable Remainder Gift work? Essentially, it’s a way of donating income (during your lifetime) while retaining the capital for your heirs – or the reverse – an irrevocable donation of capital while retaining the income for life providing the structure allowing significant assets to be donated, while benefitting the donor at the same time. 
I should stress that this is not about making it “cheaper” for the rich to give, but about providing options that will release assets to charity that wouldn’t otherwise be available. Ultimately, it’s about establishing the foundations for a more philanthropic approach; enabling supporters to define their charitable goals and helping them plan strategically how best they can be achieved.
In the US, demand for these trusts is high. They’re designed to meet the needs of donors and smooth the pathway for major charitable giving and that’s what they do. The average size of a gift through a lead or remainder trust is $300,000. Here in the UK, we’re yet to develop such products and the average value of what we describe as a “major” gift is possibly closer to 10% of that. There are a wide range of tax benefits for giving, but even those are poorly understood. 
So if we want to create a truly philanthropic society, isn’t it about time we facilitated that shift and created more sophisticated, flexible donation products? Shouldn’t we be working more closely with the professional advisory community to ensure that conversations around financial and estate planning address people’s charitable goals. Certainly, Remember A Charity has made some huge strides here in encouraging solicitors to talk about legacy giving. Imagine what the sector could achieve if financial planners were regularly including charity in their discussions? Just getting fundraisers, professional advisers and donors to feel comfortable in having those conversations together – in one room!
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