What are the giving options available for those who are new to giving? Here Mary Smith, Senior Relationship Manager at Prism the Gift Fund, explains what a Donor Advised Fund (DAF) is and why they might be the solution for donors wanting to invest £25k plus in good causes.
“Set up your own Foundation under the auspices of the Charity Commission” is the answer many individuals receive when they decide they want to donate large gifts and grants to charities close to their hearts. This advice may have come from their lawyer, wealth advisor, family or friend; and in the majority of cases is given genuinely due to lack of knowledge of other options. In truth, setting up a Foundation is legally onerous, expensive and time consuming; with a whole host of responsibilities and due diligence placed upon your trustees. The revised Charity Governance Code is worth a read if you are considering registering a new Foundation. In order to avoid the cost, time and complexity of this, an alternative is to set up a Donor Advised Fund (DAF).
A DAF is charitable giving vehicle administered by a public charity. Our clients are mainly UK tax payers and a DAF allows donors to make an irrevocable charitable contribution, receive immediate tax benefits (where applicable) and then request grants out to charities all over the world. Prism the Gift Fund (Prism) is a UK registered charity, so the individual can operate their DAF under our regulatory roof.
Recently a client was referred in to us who was in the middle of a long and tedious process of setting up a Foundation with the Charity Commission. They were having coffee with another Prism client who asked, “Did you know there is another way - that is Prism?” Within 2 hours, their tax advisor was in our office. Clients are still able to do what they set out to do – gift to charities close to their hearts; but with a DAF they can do this without the legal administration burden, finding trustees and associated costs.
Professionalising Philanthropy in the UK is a progressive movement, one which we are left in the wake of the US where DAFs are commonplace and have been since the 1990s. High Net Worth individuals may have lawyers for their legal needs, asset managers for their wealth and understandably want to have their philanthropy managed professionally too.
Once individuals decide they want to open a DAF with us the next 3 questions tend to be:
1) Can I call the DAF what I like?
2) What can I gift into the account and how much?
3) Are your fees based on a percentage?
Clients can call their DAF whatever they like, for example, the Joe Bloggs Foundation. In addition, their ‘Foundation’ and trustees won’t be listed on the Charity Commission website meaning anonymity and no unsolicited applications. Clients need a minimum of £25,000 to open a DAF at Prism and can gift either cash, shares, property, art or a myriad of all these options. Tax breaks may apply, and quarterly and annual statements are given to clients to simplify their own tax returns. Fees are based upon the level of administration and work surrounding the account and are not charged as a percentage on the amount in the account. Prism also offers enormous flexibility as to where a balance of funds can be asset managed – we currently have £70-80m asset managed across a number of different managers and structures.
We’re often asked at what giving level or under what circumstances would it be advisable to set up your own Foundation with the Charity Commission. In all honesty a DAF is totally unrestrictive. For those who wish to give without the hassle then a DAF is a highly effective alternative. However, if an individual wishes to set up a large and active Foundation, and plans to donate millions annually, then their own Foundation may be appropriate. They should have a group of knowledgeable trustees and a team of people to run the Foundation in order to do this.
Prism aims to educate and increase awareness of DAFs so we can increase the flow of funds to the charitable sector. Each year in the last 3 years we have had income of £20-£30m. Last year we gifted out £20 million to charities across the world. Giving via a DAF is not only better for the individual; it also allows funds to reach charities swiftly, making it an all-round winner.