With the future funding capability of the Northern Rock Foundation still uncertain, charities in the North East may face the loss of a valuable, significant North East focussed donor.  Samantha Pritchard, an Associate in our Charities Team discusses the way in which family giving could fill this kind of gap, and those in other regions, through the establishment of a family foundation.

A family foundation is a charity which is funded solely or primarily through an individual, a family or a family business.  The reason for deciding to establish a family foundation varies from family to family.  Triggers can include:

  • a desire to leave a legacy for the future which can start having an impact immediately,
  • a desire to meet a need in society which does not appear to have been identified by others,
  • to pass on the importance of altruism and philanthropy to younger generations in the family,
  • to use the family foundation as a tool to teach younger generations how to deal with money responsibly (recognising that they may be likely to inherit significant private wealth),
  • to benefit from tax reliefs on donations to the foundation during their lifetimes and upon their death;
  • or even to intentionally limit the inheritance that younger generations will receive.

Establishing a Family Foundation

Identifying how it should be funded and by whom should form part of a family’s long-term wealth management plan.  Of course donations by the family to the family foundation are tax efficient for both family members and family businesses.

Funding options are numerous and include regular giving, a “one-off” initial lump sum or subsequent “top up”, leaving a legacy or donating profits or shares from the family business.  For long-term, sustainable giving, an endowment whose careful investment can fund annual giving is the most usual option.

The UK offers an attractive setting for a family foundation with flexible governance arrangements, transparent and accountable practices and a freedom to support those charitable causes most important to the family.

The structure of a family foundation can be such that its individual trustees are protected from personal liability, and governance arrangements can provide as much or as little control to the initial founder as he or she desires (subject to complying with the law), along with flexible arrangements to involve younger members of the family in a consultative role if required.

The usual approach is for a family foundation to be established with the objective of furthering such exclusively charitable purposes as the trustees, in their discretion, decide.  This gives freedom to react quickly to charitable need in a changing social and economic climate.  Nevertheless, from a good governance perspective, trustees should establish a grant-making policy setting out issues such as how recipients of funding will be identified and what the funding priorities are for the next three years (for example) to ensure focussed and effective giving that achieves social impact.  The family foundation can reflect the unique interests of the family, whether they be local, national or international in focus, and represents an opportunity to match private giving with public need.

Comment

For many successful individuals, a desire to make a social impact with their wealth and expertise is highly important as a way of giving back.  To do so effectively and efficiently in today’s landscape of regulation, complex tax reliefs and media scrutiny, it is vital to receive high quality, knowledgeable advice from practitioners who specialise not only in managing wealth but also in the intricacies of charitable giving.  Choosing a family office capable of meeting all those needs and helping you with the stewardship of your family wealth is key for those who wish to have structure and form to their giving.