16th September 2019
Why set up a Donor Advised Fund over a Grant Making Foundation?
Donor Advised Funds are cost effective, efficient and flexible charitable vehicles. DAFs enable donors to grant out internationally to causes of their choice where and when they want without the legal burden of running their own charitable foundation.
While Donor Advised Funds may seem new to the philanthropy scene, they have been operating for decades in the United Sates as a tax effective, simple alternative to having a private foundation. The UK is some way behind with only £2billion under management in DAFs compared with £110billion in the States. If you would like a comprehensive overview of DAFs, then read ‘Everything you need to know about Donor Advised Funds’.
Where does this leave HNW philanthropists?
Donor Advised Funds (DAFs) are own name accounts held within a charitable organisation, like Prism the Gift Fund. Donors can make irrevocable donations, claim tax relief where applicable, and then recommend charitable grants to charities all over the world. A donor has peace of mind as a DAF comes with the built-in expertise and confidence of navigating the Charity Commission. A DAF makes charitable giving easier, simpler and more rewarding for HNW donors without the complexities of creating their own foundation.
The UK Charity Commission, has recently introduced increasingly rigorous regulations with oversight and investigations by the Enforcement Unit, Cyber Security and Fraud Unit. This has complicated the art of giving and running a foundation now requires extensive expertise across several areas. Charity trustees are required to have knowledge and understanding of the rules and requirements on making a grant, the due diligence and reporting required and HMRC regulations on tax effective giving. Not only this, but trustees also need to keep abreast of the ongoing policies that Charities must have in place – Safeguarding, Whistle Blowing and Privacy to name but a few.
The benefits of a Donor Advised Fund over a Grant Making Foundation:
- Most DAFs are free to set up and on average cost 1/5 of the price of setting up, running and administering a foundation. This figure is based on a conservative average cost to create and administer a foundation which includes office and staff overheads, legal fees, accounting fees, auditing fees, reporting costs and expenses. This is without factoring in the cost of the time an HNW philanthropist will onerously spend on setting up their foundation.
- With a DAF, the compliance, governance and due diligence costs are divided amongst the administration of multiple client accounts, making it a far cheaper option than setting up a standalone charitable foundation
- A DAF can be set up immediately, whilst a foundation currently takes 6-9 months for Charity Commission approval and the added time spent registering a bank account.
- With a DAF, a client completes KYC, signs the contract and can start giving immediately. In comparison a foundation demands time spent finding and appointing a board of knowledgeable trustees, trustee training, creating policies and grant application templates and finding an accountant and auditor for annual accounts. This is in addition to the process of setting up and running an office for the foundation.
- With a Donor Advised Fund you request a donation to be made and depending on if the gift is to a UK or overseas charity it can be sent within 48 hours. Whereas a grant making foundation requires time to process applications, open mail, file and store documents, liaise with beneficiaries, claim Gift Aid, administer grants, conduct appropriate level of due diligence, report and stay abreast of the latest developments and requirements of UK Charity Law. There is then the annual/biannual board meeting to arrange and minute, set an agenda, and prepare board papers.
- A DAF removes the onerous responsibility of being a Trustee and still allows a quasi-board to continue to name the DAF after the trust and suggest where to gift.
- Donors can gift cash, shares, property and art to their DAF without the need to grant out immediately. A DAF can make overseas gifts whilst still benefiting from UK tax relief. There is the option of having a balance of assets managed with an investment firm of the donor’s choosing.
- A donor can choose to make a gift anonymously or be recognised, naming their DAF after their family name for example. However, with a grant making foundation, accounts are public record, and everything is visible on the Charity Commission website meaning there is no anonymity for donors.
Donors can leave a gift in their will, nominating their DAF for their legacy giving. A DAF provides donors with a solution to making gifts in a will that does not require unwanted legal responsibility for beneficiaries or setting up a complete new charitable entity.
To set up your DAF, contact Prism today.