30 March 2020 - Article
While most philanthropists prefer to structure their charitable giving tax efficiently, no one gives to charity simply to obtain tax benefits. Most people give because they want to make a difference to society and “give something back” and they generally want to do that as efficiently as possible.
Tax efficiency is important in structuring charitable giving. By making charitable gifts tax efficiently, in the U.K. a charity may receive £100,000 at a cost to the donor of £60,000 (and sometimes considerably less); but what is the point of that tax efficiency if the money is not then used effectively and the good it does could equally have been achieved with a donation of £20,000? Whilst we can help with tax efficient structuring, we now find ourselves working with a variety of different advisors who can help donors (or trustees) with the effective application of charitable donations. Many of these have become household names but this article describes the often unrecognised role of community foundations in this field.
In the same way that an investor’s portfolio may include different asset classes, donors often have a range of charitable interests, for example: international issues like global warming or HIV/AIDS, national issues such as family breakdown and specific issues affecting areas with which they are connected. It is in relation to the last category that community foundations can help, in particular by running personal (or family) funds on behalf of donors or groups of donors.
Although community foundations originated in the U.S., there are now more than 1,100 worldwide (in more than 35 countries) over 50 of which are in the U.K. The strength of the community foundations lies in their knowledge of the communities in which they operate and of the groups, most of which are very small, which make a real difference within them.
The average size of grant made by U.K. community foundations is currently around £3,000 but these can make a real difference, for example, by providing seed capital to enable the groups they support to overcome hurdles or to attain self-sufficiency. These groups can frequently achieve far more with small grants than larger groups achieve with greater funding, but they are often invisible to potential funders; also, as they are rarely subject to official scrutiny, it can be hard for potential funders to assess their performance. But community foundations’ local knowledge enables them to identify and support the effective groups and, where groups have potential but lack the skills required to operate effectively, often to provide the support needed to address their shortcomings, enabling them to be funded with confidence.
But community foundations can do more. Some donors wish to give not just money but also time and experience. Community foundations’ “hands on” approach, coupled with their local knowledge, enables them to connect people with projects in a way that can increase the benefit to the group and to the funder.
In the multi-generational family context, community foundations can not only facilitate the effective delivery of the family’s donations to local projects, they can provide opportunities for the next generation to become involved with them in a controlled and supportive environment.
If your family is interested in benefiting a local area, we would encourage you to consider what a community foundation might be able to offer.