Monday, August 8, 2022

Dickens would be the first to applaud philanthropic families who help build bridges and…

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Mr. Fezziwig would certainly applaud some of today’s philanthropists who are doing something worthwhile with their wealth. In fact, the generous employer from Charles Dickens’ A Christmas Carol would have been the first to help bridge the post-pandemic gap, when UK statistics suggest 25 per cent of charities lost 40 per cent of their income in 2020.

Some individuals and families in the UK help by establishing private family trusts, funded from family wealth and often run by family members, to serve their philanthropic aims. In fact, statistics show that people in the UK gave £11.3 billion to charity in 2020. Meanwhile, I think Ebenezer Scrooge, who was vilified before his conversion to Damascene, would have been less inclined to set up The E. Scrooge Charitable Foundation.

Today we see more and more people using a UK family trust or endowment to leave a legacy of their acquired or accumulated wealth, alongside some of the tax incentives that come with charitable giving. This is now not just reserved for those with significant inherited family money and wealth. Everyone from Socrates to one of the modern fathers of philanthropy, Andrew Carnegie, would welcome this charitable use of money.

However, the Scottish-born Carnegie made cautionary statements about money and donations in an article The Gospel of Wealth written in 1889. He also advised against leaving a fortune to charity as there is no guarantee it will be used wisely. He feared there was no certainty that a charity would use the money in an acceptable way for the donor and what he/she wanted to achieve.

His arguments also centered on excess wealth upon death, and he believed that the state should have a progressive tax system and would be best placed to maximize the benefit of that wealth to society at large. This view, applied to today, could throw some professional advisors out of joint. However, Carnegie might also have had a different perspective on the capabilities of the current generation of politicians across Britain.

Rather, we see the current trend of philanthropy emerging, with trusts and endowments offering families control and opportunities to build relationships with charities they wish to support, rather than just offering one-off or occasional donations. Carnegie would no doubt approve of that even if it wasn’t government controlled.

Associated with the altruistic motives in giving are very practical motives, with sometimes significant tax incentives and other benefits. For example, if someone leaves 10 percent or more of their estate to charity (or indeed their own family trust or foundation) to their will, the inheritance tax rate on the remainder of the estate drops from 40 percent to 36 percent.

However, many would prefer to commit to their foundation during their lifetime and continue to develop their philanthropic strategy and grant policies. Family members often act as trustees for charities and this is an excellent way to introduce the next generation of family members and educate them on how wealth is managed and how far it can go. It is often their first encounter with a boardroom environment and can be very revealing about the value of money and the positive impact it can have.

In our experience, many families wish to leave a legacy, and a trust or endowment set up during their lifetime allows them to see the results of their generosity. The psychology of giving is fascinating, but one of the most rewarding forms of tax planning from an advisor’s perspective.

Trusts and foundations are regulated by OSCR in Scotland and The Charity Commission in England and are required to file annual accounts. Of course, they must meet the requirement that they are non-profit. The Trustees must ensure that the investment objectives are not only about growth, but also support annual donations at a level that the Trustees are aiming for.

In the current economic situation and the cost of living crisis, this issue of the common good has come more into focus. Many in society are faced with heartbreaking choices like heating or eating. It would be interesting to know what Dickens could do with Britain as a social commentator in 2022.

Peter Shand is a partner at Murray Beith Murray

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