As we know from Charles Dickens, the Victorian age was a cruel time for many. Perhaps because of such hardship, the second half of the nineteenth century produced some of the greatest ever philanthropists. Nevertheless, as many scribes have written over the centuries, ‘Charity begins at home’ – and so it should. But, sometimes, those with no family to speak of and with plenty of excess wealth may have to look a bit farther afield.
If you are one of those people, you can of course give to worthy causes, both during your life and in your Will; if you leave more than 10% of your estate to charity when you die your inheritance tax bill on your remaining assets goes down by 4%.
We know that the big charities do a great job, but those “chuggers” ambushing you as you rush for a train can be rather counter-productive. The answer may be to support a cause that is smaller and perhaps more local. One of the best ways of doing so is to form your own charity, either during your lifetime, or in your Will when there may be more liquid assets available.
To qualify as a UK charity, your organisation must firstly, have exclusively charitable purposes, and secondly be for the public benefit.
The list of UK charitable purposes now runs to well over a dozen and includes the prevention and relief of poverty, the advancement of education and health and the advancement of the arts, culture, heritage and science; not to mention a general one called “any other charitable purposes”. To be for the public benefit, very broadly, your charity must be able to help a large enough number of people rather than a restricted group, such as a family.
If you are not certain about which cause to help you can always form a charity with general charitable purposes, with the cause to be decided upon later by the charity’s trustees. This is often done, in my experience, by philanthropists who have the appropriate wording put in their Wills giving their executors wide discretionary powers as to which cause to support and the appropriate framework to create.
When it comes to the type of structure for your charity there are only three choices: a Charitable Trust, a Charitable Incorporated Organisation (CIO) or a Company Limited by Guarantee.
The trust is the simplest form and is often used where the charity is only going to make grants. The problem arises, however, if the charity will incur significant liabilities, such as wages and so forth. Here the trustees could be personally liable, so a CIO would be a better choice. This structure has not long been in existence but will protect trustees from personal liability. However, borrowing money may be difficult because of the absence of a central register. A Company Limited by Guarantee may, therefore, be the only option – again affording the trustees’ protection from personal liability. They would also be company directors.
Whatever the structure, in most cases, the charity will have to be registered with the Charity Commission. The Commission will not impose strong regulation but it has wide ranging powers should anything go wrong. In any event regular accounts and trustee details will need to be filed with it. You will find a lot of helpful guidance on the Commission’s website.
If your charity is being created during your life, then your choice of trustees will be very important, particularly if they will be doing more than simply making grants. You will need people who can deal with accountancy, fund raising, looking after staff and many other issues. You may wish to be a trustee yourself which is, of course, absolutely fine.
When you die, if your charity is already in existence, your Will will leave some or all of your estate to it, all free of inheritance tax. Alternatively, you can set up a charitable trust in your Will which only comes into effect when you die. You give your executors freedom to proceed from there, all free from inheritance tax. You can be as specific or as general as you like in your Will as to the charitable purposes you wish to benefit but good investment advice and sound management of your charitable funds wil be essential.
If your circumstances are right, there is really no excuse for you not to set up something of your own, to emulate, in some small measure, the great philanthropists of the Victorian age, so that, just like them, your charity may still be helping worthy causes in over 100 years’ time.
David Semmens, Partner, DKLM Solicitors
020 7549 7888 firstname.lastname@example.org www.dklm.co.uk
JM Finn & Co is not able to give individual advice of this nature. Clients who wish to explore the points that this article refers to should seek advice from a specialist in relation to their own personal circumstances.