What issues should I consider when setting up a charitable vehicle for a client?
First, you can help the client determine whether setting up their own charitable vehicle is the best option given their objectives.
Whilst there are many strategic and technical benefits to charitable vehicles, some clients may prefer not to have the hassle of administrative and regulatory requirements, or perhaps the personal responsibility and engagement needed to manage such a vehicle, especially if they are giving away limited sums.
If this is the case, then you might consider a donor advised fund, which is a fund managed centrally by another organisation, such a fund at the client’s local community foundation or a charity account hosted by organisations such as the Charities Aid Foundation.
Alternatively, there are various philanthropy funds in which your client might directly invest, or they may wish to invest in a project alongside an established funder in their area of interest. See The Philanthropy Directory for a comprehensive list of philanthropy and social investment funds.
When setting up a charitable vehicle for a client, there are a range of issues to consider in choosing the form and jurisdiction, including:
- Purposes – Clients must name the purposes of the trust when registering it as a charity. These can be very general or very specific. Charitable trusts are primarily used to make grants, but they may also be used for certain mission-connected investments as allowed by the Charity Commission for England & Wales. Trusts may be set up with either a permanent endowment or an expendable endowment.
- Trustees – Clients should consider who they want to have as the vehicle’s trustees or directors. This often includes themselves and a legal representative, but may also include family, business partners or experts in their area of interest.
- Risk profile – Clients may wish to set up their vehicle as a company limited by guarantee to limit the personal liability of the trustees.
- Tax exposure – The structure and territoriality of the vehicle should reflect the tax exposure of the founder. For example if the client is a US citizen without any UK connection, then a UK charity may not be the best option.
- Territoriality – Other territoriality issues include where the charitable work will be carried out and whether family based outside the UK will be involved.
