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Top Considerations When Setting Up Charitable Endowments

James Wilcox, 10 August 2020

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Setting up a charitable endowment or foundation is a rewarding experience, but one that family offices and HNW individuals must not take lightly. A London-based figure from the wealth management sector walks through the process.

Once you have decided upon your aims, the next step is ensuring that you have the legal and contractual framework in place to support your work. Create a business plan, set up a board of trustees and follow all prescribed guidelines. For example, when applying for a grant you must meticulously carry out all financial due diligence; this is something that needs to be managed daily. We would recommend working closely with a law firm when establishing charitable foundations to help navigate the contractual complexities and to maintain client protection. 

Reputation protection is an important part of the process, as donating money to a group of people is like any investment. One must confirm that the charity’s values align with those of the donor, and that there are clear processes in place to guarantee that the money is used as intended.  Despite well-meaning intentions, a lack of thoroughness can be extremely damaging to a client’s name, should the Charity Commission start an investigation. Therefore, you should establish donor clauses to protect clients from the potential misuse of public and private funds, enabling them to legally withdraw donations if there is any misconduct. 

Donor involvement is therefore another key element of this framework. At Floreat, we encourage donors to be as involved as possible, and to understand every stage of the process, from grant applications to donor agreements. We run courses to train them to be trustees and treat them like a board of directors. This hands-on approach is not only more rewarding for the donors themselves, but also increases clarity throughout the process for all parties involved.

Finally, it is crucial that you are creating sustainable impacts. Long-term thinking is at the heart of this and I have found that a minimum of three years of donation time is recommended to enact true, lasting change. Accordingly, some of our foundations prefer three-year donation agreements, which allow the donor and charity to build a relationship and ensures that every project we embark upon has positive and long-lasting impacts. 

Setting up a charitable endowment or foundation is a truly rewarding experience, but one that must not be taken lightly. Preparation and planning are key, and having the correct contractual framework in place can protect you from the pitfalls of this highly regulated space.

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