Philanthropy: what's in it for you?

A client, for whom I had given advice on inheritance tax planning and a new will, asked me if I could help her review her application to register a small charity whose principal goal was to bring meaningful time for arts and crafts back into state schools. The subject had slowly crept further and further down the list of priorities, meaning that basic equipment was lacking and, as a result, enthusiasm had diminished for the subject from both teachers and pupils alike.Inevitably, the conversation led to the source of funds for the charity which was her father’s varied and substantial offshore trusts, the ultimate beneficiary of which would be the client.

One of the reasons for philanthropy is a concern about the effect of leaving too much wealth to the next generation, as in the example above. This can prompt the decision to make a contribution and give away funds. The art-based charity was the tip of the client’s aspirations and there was a clear and resolute desire to make an immediate impact rather than establish a trust that runs for decades spending income as it arises and preserving capital for another time. The client was prepared to roll up her sleeves and get stuck in and had timetabled a strict level of funding for each year, mirroring spend-out foundations where there can be an intense schedule of spending to strike at the perceived nub of a problem.

Clients often relish the ability to use existing skills in a project or even more so to develop new skills. There is also often the opportunity to work with others whom they would not ordinarily meet. This can breathe a new lease of life into a client who has successfully been doing the same thing every week for the last 25 to 30 years. The bottom line is that it’s fun and as the adviser you can vicariously enjoy that sense of rebirth and feed off the genuine excitement that is generated.

When the client’s father died and there were concerns about the administration of the trusts and some of the protectors’ intentions, I was very well placed to step in and provide timely and much needed advice with the client’s long-term goals firmly understood. I also now regularly chat about the charity and the next phases of its development.

Lifetime gain

Another client held public company shares pregnant with gains and saw an opportunity to wash out those capital gains, make a significant saving on his income tax bill and create the long-anticipated charity, which initially he, a close friend and wife would administer as trustees. The longer term saw the introduction of his three children to be mentored until such point as they were able to take on the role and reach decisions together; the aim being that this would continue to the next generation and so on.

What was important was that the family would be able to directly experience the value of their contribution now, during their lifetimes, rather than through their wills; what better incentive for the next generation to get involved than to witness the fruits of their parents’ hard work and considered decision-making?

Building client relations

In fact, this charity planned to feed other charities that already had efficient infrastructures to maximise the value of the funds. But how do you decide? The answer can lie with strategic giving and due diligence. By being involved I entered a world I never knew existed, with information sharing through giving circles and funding networks. For the cynical among us, all very much the types of clients for whom any private client team would be happy to act.

What struck me was that the ?greatest rewards appeared to emanate from the elements of the charitable works where the donors had a connection and naturally became animated and passionate. There was also an unquenchable thirst for facts and information to enable targeted problems and hurdles to be overcome. This led to yet more troves of interested parties with knowledge that they would willingly share, an unconditional enthusiasm to contribute at a different level.

All this was, of course, invaluable when understanding the client’s next move; an insight which enabled advice to be as bespoke as possible.

Exciting conversation

One of my first new enquiries of the year led to a very exciting conversation about a client’s plans for the future with financial and other contributions to projects in his native South Africa at the forefront of his overall and complicated tax planning. When he explained his position he lightly touched on the subject and I took the opportunity to ask some very open questions. The prospective client was noticeably thankful to have ?what others might perceive to be ?the elephant in the room, a taboo?subject, being freely discussed.

I believe that clients are sometimes at a loss with whom to speak about their philanthropic wishes. I am always very careful to state the extent of my experience and expertise but that doesn’t mean that I, and you, can’t play a supportive and meaningful part in one aspect of the bigger tax planning picture.

That rapport that the conversation created, resulted in direct instructions and open discussions about the future relationship and how we can work together on making the client’s ?aspirations a reality.

In fact, the client was experiencing substantial liquidity within his estate, having just sold half of his business; for others it may be an inheritance or finding that they have more time to devote because they have, for example, retired. Which brings me back again to the suitability of the private client solicitor, who will always sign off the last piece of work with a recommendation to keep affairs under review if there is any significant change to the client’s financial or domestic circumstances. It’s exactly the same trigger with philanthropy.

Cross-referring

Of course, I was now also able to do a spot of cross-referring to our charity and social enterprise team which adds value to the client in giving advice from the potential recipient charities’ perspective and in particular its in-depth knowledge of the sector, helping to run charities and also in many cases acting as charity trustees or school governors.

Opportunities present themselves when you’re looking for them. Sometimes you can be genuinely surprised at where an innocuous conversation can lead. A couple of years ago I was a speaker at a presentation by private client and media teams to the members of British Academy of Songwriters, Composers and Authors; the topic centred on tax planning opportunities through actively exploiting royalties and rights to attract business property relief.

Having a well-earned glass of wine afterwards, I met a musician who it quickly transpired felt that he had done well enough for himself that he was no longer interested in the regular payments for his contributions to tracks in the late 60s. While Gift Aid and Sharegift are well known, it was not until then that it dawned on me that those with any ongoing royalties and rights can also make a valuable contribution by assigning their rights to their chosen cause.

In fact this gave me an opportunity for a welcome referral to a firm of accountants that specialise in advising the music industry and so built upon the existing mutual referral of clients. Not a direct benefit, but a very useful one generated from a less than ordinary situation.

Private client solicitors are perfectly placed to step into this supporting role. What’s more, when looking at a professional business model, one of the targets will be to attract and retain clients with whom you have a long-term relationship, which extends to their family and like-minded friends, who value your legal and other input into their personal and business lives. While not the only way, philanthropy is nevertheless a very good way in which to achieve this.

As I sit at my desk, it’s clear that clients really appreciate receipt of philanthropic advice. All those referred to above have decided to continue to work with me in what they perceive to be a valuable relationship.

Rod Smith is a partner at Stone King
Article first published in Solicitors Journal

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