19th March 2020
A Donor Advised Fund is a time, cost and tax-effective solution to philanthropy. With £1.5 billion pledged to charities via Donor Advised Funds in the UK, they are the fastest-growing philanthropy vehicle. The 4th annual UK Donor-Advised Fund Report notes that contributions to UK-based DAFs are at an all-time high of £522 million, a 9 percent increase over the prior year.
Donor Advised Funds were first established in the 1970s in America and are philanthropic vehicles established as holding charities that allow donors to contribute to their ‘Own-Name Foundation’ (where they may be eligible to receive immediate tax relief) and then recommend grants from their Donor Advised Fund to different charitable entities. Prism enables donors to give to charities, social enterprises and not-for-profits all over the world. A point to note is that Prism (the operating charity) has ultimate responsibility and discretion over a proposed grant request – this is where a donor benefits from Prism’s Board of Trustees’ expertise to ensure all donations are compliant with UK charity law. Donors have the joy in giving to the causes they care about without the burden of governance and compliance.
The challenges that Prism the Gift Fund helps alleviate is two-fold. With the ongoing rules and requirements in regulation, setting up a standalone charitable foundation is extremely onerous and costly. In addition, there are too many foundations that are not run efficiently partly due to those involved not having the necessary financial and regulatory charitable expertise.
The governing body that regulates UK charities is the Charity Commission. The Charity Commission plays an essential role in supporting public trust and confidence in the charity sector. As a regulatory body, it takes a risk-based approach to regulation and relies on self-help measures for charities to comply with legal obligations. Therefore, the legal burden that befalls trustees is high: the commission relies on external reporting, for example from trustees, to identify when charities are not complying with charity law. In 2019, 600 serious incident reports were filed in the UK. There is a burden on those operating charities to do so effectively, efficiently and in a compliant way. This means creating policies that will govern processes and procedures internally at the charity. An example being fraud-related issues – there is over £2billion in fraud a year in the charity sector and charities still significantly under-report fraud and theft – and so UK charities must have anti-fraud preventions in place to reduce this.
A Donor Advised Fund mitigates these problems as Prism’s highly educated Board of Trustees oversee the internal governance and compliance standards of the charity. The Charity Commission warns of charities taking public perception seriously, Donor Advised Funds avoid reputational risk for high-profile donors and for individuals who don’t want the burden of endless form filling and technical administration requirements.
The Legacy Fundraising report recently found that the proportion of over-50s considering leaving legacies rose by 10 percent in a year. Therein lies a huge opportunity for Donor Advised Funds to facilitate legacy giving in a will. The donor simply nominates a Donor Advised Fund as the vehicle into which a gift can be made. This removes the additional responsibility on the inheritors having to create a whole separate legal structure to run. Donors’ wishes can be followed as per the letter of wishes accompanying the will.
Whilst the proportion of HNW and UHNW individuals giving to charity is increasing, barriers to giving still exist, which prevent more funds flowing into the charitable sector.
Barriers identified in the 2019 Barclays Giving report related to ‘the perceived level of impact, administrative costs and bureaucracy, and issues surrounding well-publicised financial scandals.’ There was also a considerable lack of understanding about the tax incentives that individuals may be eligible for when donating to charity. In a major donor giving research report, supported by the Institute of Fundraising, it was highlighted that, ‘there is room for improvement for charities to better explain tax breaks and help donors with planned giving.’
Lack of understanding and knowledge on tax-efficient ways to give and on the rules and regulations governing the charitable sector are the very problems that Prism the Gift Fund’s Donor Advised Fund seek to solve. Prism cannot give tax advice, but we ensure our donors are aware of all of the tax relief associated with different types of assets – be it gifts of cash, shares, property and even art and cryptocurrencies. Prism work closely with clients’ accountants, lawyers and investment managers to ensure their giving is optimised.
We are unique within the marketplace, providing a tailored, flexible service to best assist grantmakers in their aims. We emphasise relationship management, to best understand our clients’ changing requirements and make sure that we are always doing the best for our clients.