Should you set up a foundation?

“I’m not as rich as Bill Gates so a foundation isn’t for me.” Isn’t it?

lt is my belief that the minimum size of a private charitable foundation should not be determined by the amount of money in the foundation but by the annual cost of running the foundation as a percentage of the amount it pays out in any given year.

On this basis a foundation worth £10million which gives away 5% of its capital value each year, employs an administrator for £30,000 and has other running costs including rent, legal and accountancy costs, trustees expenses and general office costs of another £20,000 has an annual running cost of 10% of grant made.

On the other hand a small foundation worth £500,000 giving away 5% annually whose only costs are the annual accountancy fee and where the Trustees do all the work could be as low as 1%.

I would argue that whilst the former may be able to make more impactful donations the latter is more efficient.

What then is an acceptable percentage? Research has been carried out in the USA into larger foundations and the evidence would tend to suggest that irrespective of size this figure tends to be in the range of 5-8% and I would suggest that this is a reasonable target.

So it isn’t size that determines whether of not you should set up a foundation, with all the advantages that it can give you, but rather the amount of work you and your fellow trustees are prepared to do to make it work.

As with all types of charitable giving there are three things you can give. Time, talent and treasure.

Foundations need all three.