Philanthropy and the role of professional advisors

Individuals, families and businesses are becoming increasingly p h i l a n t h r o p i c a l l y minded as a result of a proliferation of threats such as climate change, diseases and social need. As a professional advisor, you will likely have clients who care about their community and want to give something back but may not know where to start. They are probably already supporting a number of different charities, but may have reached the point where they would like to take a more strategic approach. Indeed, I have found that lawyers are often the first port of call for philanthropists – individuals will usually approach a private client solicitor in the context of the management of their own personal affairs and corporates tend to discuss the matter with commercial lawyers.

But what do clients hope to achieve in setting up a charity? This is a really important conversation to have with a client at the very beginning – especially since philanthropy advice has become more specialised in recent years. In the past, clients usually made donations to an existing charity and allowed that charity to carry out and monitor the grant making, perhaps with certain personal requests. But it’s fair to say that these clients would be relatively hands-off. However, in recent years, there has been a growing tendency for individual philanthropists to establish their own charitable entity and operate it themselves. This allows individuals to carry out a more bespoke form of grant-making. And this is good example of when we, their professional advisors, can add benefit and guidance.

Philanthropic clients often have clear vision and motivation. They know what they want to achieve. It’s a duty of ours to convert that energy and vision into realism and practicality, based on solid evidence that they have done their “homework”. We need to ensure that clients can demonstrate how their intended charity will fit in with existing facilities and services to fill gaps. Just as importantly, we must all make sure that this new charity will deliver demonstrable benefits – be that to both the intended immediate beneficiaries or to the public in general.

In practical terms this means that we need to carry out a proper objective assessment with the client, not just of the need they are proposing to address but what other facilities or charities are already in place to address that need. Which brings me back to this notion of starting at the beginning: if other charities do already exist then they need to question why they cannot join with them and contribute to their activities rather than setting up a new charity.

If it is determined that there is a need and desire to create a new charity then what governance issues may arise? Professional advisers add most value by guiding on how to set the project up properly - specifically whether it should be an incorporated charity or an unincorporated association or trust. These choices are important, since an incorporated organisation is regarded by law as its own entity that can employ paid staff, enter into contracts in its own name and own freehold or leasehold land or property. Crucially, the trustees of a corporate body generally aren’t personally liable for what it does - whereas those of an unincorporated one are.

Clients could also misunderstand the very notion of what a charitable donation is: the placing of funds into a separate charity means that they will be held on a public trust for charitable purposes and are no longer the property of the individual donor in question. This can come as a surprise to some clients. To that extent, there can be emotional tension in entities set up as a result of philanthropy. It’s a shame that without proper advice, the well intentioned philanthropy of an individual can lead to misunderstanding around permitted dealings between the charity and the individual. This is a risk. All charities, once constituted, must be independent of their founders and must be operated as such to mitigate such risk.

Philanthropy is also often a family activity and trustees are rarely heartened to hear that it is not possible for all the trustees of the charity to be family members. The need to have an independent trustee is even more acute in circumstances where the charity’s money and the individual’s personal affairs overlap (for instance, where the charity’s funds are invested in family companies or where the charity contracts with related parties).

In most cases, individuals have a good idea of what they want to do and often have a particular project in mind, which is frequently connected with personal experience. This might be a health concern or an area of need in the individual’s local area or home country. However, people often lack the expertise to implement their ideas and are not aware of the best routes to achieve what they need – this is why they seek the advice of professionals with expertise in the ways charitable organisations work.

I have observed that while many philanthropists are experienced business people and are adept at commercial dealings in their professional business lives, they sometimes fail to apply the same commercial rationale to the handling of their charitable dealings. To that extent, their charitable decisions can be based on emotion and not on commercial rationale and, ironically, they often need guidance to steer them in the right direction in relation to the management of the charity and the spending of its funds.

However, whilst the appetite for setting up bespoke charities has increased, the individuals I see can occasionally lose their enthusiasm for managing the charity after it has been established. This is another significant area of concern for us as professionals, since governance can decline rapidly following registration of the charity. Clients sometimes fail to take into account the level of funds required to ensure proper governance of the charity, including accounting work and dealing with the raft of policies and procedures required by the Charity Commission. It is vital that we prepare them for the realities of such procedure at the earliest opportunity.

For further information please contact: Steven Hamilton E: steven.hamilton@taylorwalton.co.uk T: 01582765111 W:www.taylorwalton.com/our-people/ steven-hamilton

Introducing TheProbatePropertyShop.com

The Probate Property Shop is a unique new estate agency that helps solicitors manage their clients’ probate property with the objective of making the whole process simpler, less time consuming and ultimately ensuring that the very best open-market value is achieved on behalf of the beneficiaries.

We can help in the following areas:

A Property Management Service to assist you with property clearance, garden maintenance, draining the central-heating, structural/damp surveys and all other property related issues. A Property Inspection Service for empty properties to make sure that all insurance criteria have been met. A Bespoke Sales Strategy giving access to every sales option – Private Treaty, Auction and Informal Tender – so that you can choose the one that’s right for your individual client’s needs.

To find out more about how we can help you get the best results on the sale of your clients’ probate property, please call Nigel Adams on 020-3758-7650 or email nigel@theprobatepropertyshop.com.