Charities & Not for Profit

Publish date

19 January 2023

Philanthropy and succession planning

What might 2023 hold for the philanthropic sector, especially in terms of succession planning? Clare Morison in our Estates, Tax & Succession team, looks at potential trends for the year ahead.

What will be the key trends for the philanthropic sector this year?

There have been a number of trends over the last few years in the philanthropic sector.

Firstly, there has been a move away from establishing family foundations as trusts due to concerns about the personal liability of trustees.  There is now a preference for using Charitable Incorporated Organisations (CIOs) as the legal structure for the foundation as they offer limited liability and are simpler than charitable companies from an administrative perspective.

There has also been a move towards using organisations such as the Charities Aid Foundation (CAF) by individuals looking to establish grant making charities.  Using these organisations eases the administrative burden of running a charity and they can handle the investment side too.

The trends for the current year are likely to be linked to the general state of the world economy and the two trends I foresee are almost opposites of each other and will be dependent on the financial fortunes of the foundation itself.

The current pressures on personal finances and difficulties in the market are likely to lead to reduced income for charities.  Therefore, foundations are likely to become more financially connected to the charities and other organisations they support and commit themselves to more long-term funding.  They will begin financially supporting charities with day to day running costs in addition to the more usual capital projects that grant making foundations often support.  This increased financial connection is likely to lead to more involvement from the foundation to ensure the funds are spent appropriately which will lead to a closer connection overall.

However, for foundations that find themselves with reduced income, there is likely to be a move towards matched funding as a way to financially benefit other charities and organisations. The benefit of matched funding is that it allows the foundation to make good use of the income it has while not being solely responsible for the funding of projects.

How are charitable projects managed when it comes to succession?

Most family charities that we have established and advise on are grant making.

When wealthy families establish family foundations, they generally do so with the intention that those foundations will last through the generations. The best way to ensure this is to get the next generation (and the generations beyond that) involved in the work of the foundation as soon as possible.

We have clients who have encouraged children, grandchildren and even great grandchildren of all ages to be involved in the work of the foundation. In addition to explaining the importance of charitable giving and the work of the foundation, involvement includes providing opportunities for them to see how the work of the foundation helps people.  This includes taking part in hands on projects for charities funded by the foundation and also assisting charities with their fundraising efforts when the foundation has agreed to matched funding.

As the children grow and become adults, their role within the foundation can develop as appropriate. Once the children are old enough to have a greater understanding of the role of charity and helping others, they can become fully involved members of the foundation even if they are not yet trustees.

The best succession planning I have seen involves founders and trustees listening to the opinions of the next generation and shaping the work of the foundation to incorporate those opinions, if necessary, as this results in better engagement from the next generation.  For example, with a grant making charity, it is appropriate to ask the children if there are any causes they support, encourage research into projects in that area that can be supported by the foundation and then direct engagement with the project if the child is capable of doing so.

Ultimately, the intention is the children will become trustees of the foundation and be involved in all areas of decision making. This type of involvement can happen earlier than most families think and generally the sooner the children are involved in the big decisions the better.  Some of the most successful family foundations which have survived strongly after the death of the founder are those where multiple generations of the family are involved in the foundation at the appropriate level.

If the founder’s family are just not interested in being involved in the work of the foundation, then the only alternative I have seen prove successful, is to put in place a strong management team.  For smaller foundations this will generally mean the appointment of likeminded individuals as trustees.  For larger foundations it can also be effective to have in place a below trustee level management team (CEO, CFO etc.) that share the founder’s vision and can take the foundation forward.

Climate change and philanthropy: what is the response from UHNW and HNW individuals?

A lot more family foundations are turning to climate change and conservation as part of the charitable purposes that they support and the considerations they make.

With foundations that own land we see changes to how that land is used with more importance being placed on ecology and conservation.

Something that is becoming more popular is rewilding, where land which was previously used for agriculture or heavily maintained in other ways is returned to nature with the introduction of native breeds of wild animals and the ceasing of its more commercial use. Conservation can also be balanced with an economic need for the land to generate income by putting in place wild borders around agricultural fields.  These borders allow native flora and fauna to thrive while still allowing the land to be farmed.

We also see the continuing trend of ESG and, in particular, conservation and climate change being important considerations when investment decisions are being made by trustees. Trustees will often now look to the environmental credentials of companies before deciding how charity funds are invested.  This is only going to continue and become more important.

Equally, issues such a climate change and other environmental matters are taken into consideration when making grants.  Many foundations are considering the environmental credentials of the charities and other organisations they support even when the work of those organisations has nothing directly to do with the environment.
Comments from this article first appeared in Citywealth. If you have any questions about this topic then please get in touch

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