Donating matters

With an insatiable appetite to make people’s lives better, Equilibrium is about to launch its second charitable trust. Debbie Jukes asks Colin Lawson the reasons behind the new venture and his hopes for its future.

You have The Equilibium Foundation, why do you need a second one?

Our new framework is designed exclusively for donor advised funds (DAF) and will be open to clients, allowing them to make a tax efficient gift and then make recommendations as to how the money is used (see pages 10-11). It is a framework that requires limited liability protection and for the majority of the trustees to be independent. It will, of course, also have different aims and objectives to our foundation.

By contrast, our current foundation was established to accept contributions from the partners of Equilibrium, our team members and our clients. The majority of the trustees are currently internal to Equilibrium and the foundation structure is such that it does not have limited liability protection.

What is the structure of the new entity?

The charity will be established as a Charitable Incorporated Organisation (CIO). This is a relatively new (introduced in 2013) type of legal format for a registered charity. The main benefits are that the charity has a ‘legal personality’ which allows it to enter contracts, sue and be sued, and hold property in its own name rather than in the name of the trustees. Its members have limited liability in the event the charity becomes insolvent. These benefits were previously only available to limited companies which require registration and filings with both Companies House and the Charities Commission. However, a CIO only needs to register and file returns with the Charities Commission, thereby reducing administration and bureaucracy.

Who will the trustees be?

Two of our existing clients have offered to take on the role of trustees, as well as external philanthropy consultant, Andrew Evans, founder of ‘Think Philanthropy’. I will be the trustee representing Equilibrium and we will also be appointing an additional independent trustee (who has experience either with

other charities or with the legal/ accountancy professions).

What will the new charity be called?

We aim to keep things simple so the new charity will be known as ‘The Equilibrium Charitable Trust’. We will of course be retaining ‘The Equilibrium Foundation’ in its current format.

Who will pay the cost of establishing it?

Our intention is for the financials to operate in exactly the same way as our current Foundation, in that all costs will be paid by Equilibrium Financial Planning. The cost of establishing The Equilibrium Charitable Trust will effectively be met by the current equity partners of the firm.

The majority of DAFs charge annually for their services. What will Equilibrium’s approach be?

While DAFs can be significantly cheaper than establishing your own charitable foundation, they can still be somewhat expensive to run. For example, Charities Aid Foundation, which is one of the largest providers of DAFs, charges £4,200 p.a. for a fund with a value of £500,000.

We want to encourage donations of all shapes and sizes and make charitable giving as friction free as possible. It’s our intention that the costs of running the trust will be met and initially funded by the partners of Equilibrium Financial Planning.

It’s also important to work out what sector client’s and their family’s would like to support and to identify which charities within a chosen sector are able to make the greatest impact. One aspect of our service will be to help clients decide the areas they would like to help and to carry out the appropriate due diligence to ensure their legacy is being used wisely.

How much are you hoping to raise?

Whilst we will be encouraging lifetime gifts, we anticipate a large proportion of the money and mandates will come via clients’ wills and so hopefully this is a long-term question.

We will be monitoring the ongoing commitments of clients to donate money in the future so that we can monitor the success and demand, in order to structure the organisation accordingly.

However, to put this into context we already have a number of interested clients. I would guess the total amount in question at the moment is circa £5million. I will be disappointed if, during my lifetime, we couldn’t raise £50million.

What role does Equilibrium Financial Planning play in the process?

The unique ability of our financial planning arm is to maximise the money under management for our clients. For example, there’s an article in this edition (on p.14) which talks about the benefit of both Gift Aid and tax relief on a charitable donation. We can take this even further by looking at an example where a client has shares or unit trusts with significant gains. These could be assigned to charity and the capital gains tax avoided, as well as income tax relief given on the value of the shares gifted.

I mentioned earlier that we expect a large bulk of the money to come via our client’s wills. However, lifetime giving that attracts Gift Aid can make a significant difference and when our clients can afford it, obviously we will be encouraging this approach.

It’s also our role to highlight the advantages of giving on death. For example, anyone with an inheritance tax (IHT) liability who leaves 10% of their taxable estate to charity can receive significant reductions in their IHT liability. Recently, I had a case where a client’s father had passed away. I calculated that if the beneficiaries were prepared to be £16,000 pounds worse off, this would result in a £64,000 donation to charity.

I will be disappointed if, during my lifetime, we couldn’t raise £50million.”

In this particular case, there were five children, so each child had to agree to receive £3,200 less, in order to donate £64,000 to charity. With larger estates, the amounts can be significantly more.

Equilibrium’s purpose is to make people’s lives better and we do that through helping our clients live the life they want, look after those they love, and leave a powerful legacy.

Often for my clients, I help them mentally address this by earmarking notional pots. Once this money has been set aside, I ask: “How much would you like to put to one side to look after those you love?”

Then: “If yours and your family’s needs are well taken care of and if there’s any money left, how much do you want to set aside to look after further causes such as charity and philanthropy?”

The ultimate objective is to demonstarte that the money is not needed in their lifetime. This can then help the correct structuring of wills but also encourage lifetime giving in the process.

When will it be established?

We will shortly be in a position to submit all of the paperwork to the Charities Commission for approval, which can take anywhere between six weeks to six months.

During this time, we will be creating all of the supporting documentation and guides that clients and their advisers will need in order to make the process as smooth as possible.