Charitable Trust Planning
If you have sufficient excess capital, that your own needs are covered and your family are fully provided for, what do you do with the excess? Some clients regularly give money to charity, and some give enough each year that they use the services of a donor advised fund such as Charities Aid Foundation (CAF). The advantage of these organisations is that the administration is made simple by offering a single place to donate to and a single account to make payments to multiple charities from. The downside is that for the larger donor the costs can be high.
One key advantage of charitable giving is tax relief, you get income tax relief at your highest marginal rate on your donation and if you gift assets with a gain, you can also benefit from capital gains tax relief. Charitable giving in your will can even help with inheritance tax as a legacy of 10% of your taxable estate can reduce your beneficiaries IHT rate from 40% to 36%. Extraordinarily if you already have charitable donations in your will equal to 4% of your taxable estate, then increasing them to 10% will not cost your beneficiaries any inheritance as the increase will be fully offset by their tax saved.
One issue with the income tax relief on donations is that people tend to give every year to the same causes. Whilst they are working, they might be getting income tax relief at 40%, 45% or even 60% depending on their tax rate but when they retire, these same donations only receive 20% income tax relief as they become basic rate taxpayers. One way around this is to accelerate all of your lifetime giving into a single lump sum donation when you are at your peak income tax paying period. You can do this by donating to a DAF as described earlier but for some clients there is an alternative.
We have helped many clients over the years to set-up their own charitable trusts. There can be legal and accountancy fees to be paid (annual returns need to be made) but for larger sums this can be a lot cheaper than a DAF which works on a % basis. The donation can be partially invested alongside standard investments and partially held in cash to facilitate donations over the rest of their lifetime. Doing it this way also tends to develop more client engagement with charities they support, and we find that clients enjoy and find purposes in their charitable trusts in their retirements.
Charitable Trust planning is available to Altor clients in our Core Service.
Nothing on this website or its links constitutes a personal recommendation; the information contained is designed to be informative but not to be relied upon as individual circumstances could affect the relevance of this guidance.