Is gifting all in the timing?
The motivation for gifting – whether for philanthropic reasons or with estate planning in mind – is personal and varied. Whether you’re wanting to support a loved one, or to fund a cause close to your heart, it can be tricky knowing when and how to go about doing it.
In this article, we ask Juliet Agnew, Nick Bearne, and George Hill to reflect on the specific issue of timing, and to break it down into three parts: real-time gifting, later-stage gifting, and posthumous gifting.
Please note: This article does not constitute advice and is written with a UK audience in mind. Barclays Private Bank does not provide tax advice and you should always seek independent tax advice. Your tax circumstances are unique to you and subject to change.
1. Gifting immediately
When a charity or cause captures your attention, the impulse to help immediately can be very strong, especially if you have funds readily available. This is particularly true when humanitarian disasters are unfolding, or when societal events are garnering significant media attention.
The outbreak of war in Ukraine is a striking example, having led to an outpouring of spontaneous donor support from around the world. In this instance, speed (of donation) became the priority, rather than the longer-term objectives normally associated with strategic philanthropy. It’s a subject we covered in a recent article, Responding to Ukraine: Philanthropy during a crisis.
As Juliet Agnew, from Barclays Private Bank explains, gifting in real-time can come with a trade-off: “There’s no one-size-fits-all approach to being a donor, but broadly speaking, giving on impulse won’t have the biggest impact compared to giving via a well-planned strategy. That said, it’s not without its merits, because today’s significant global challenges often need instant responses. As a donor in these circumstances, there’s a mental balance to strike - knowing you’re helping something in urgent need, but recognising it’s not the optimal way to execute philanthropy more broadly. And remember, you can always give now but make longer-term donor commitments in parallel as well. It’s not a binary decision.”
There is also an educational aspect that comes with being a donor. “I’m a big believer in the idea that you learn as you give,” says Juliet. “Whenever you act on your interests and support a charity or cause, you’re picking up things that can shape and enhance your future donor experiences. If you delay donating, you delay learning.”
2. Gifting later in life
For Nick Bearne, there are merits in gifting further down the line.
“Gifting too much, and too early, can distort not only your own lifestyle needs and overall estate planning, but also the plans and motivations of your children,” he explains. “There are various things you can do with your estate during your lifetime, so building-up a comprehensive picture of your wealth options and ambitions, is key.”
“At one end of the scale, a person might decide that they want to spend everything before they die, sometimes jokingly referred to as ‘SKI-ing’ – Spending the Kids’ Inheritance. While at the other end of the scale, a person might be thinking about insurance to protect inheritance tax liabilities. The good news is that there are options, but you have to decide what you ultimately want to achieve." Nick discusses insurance in a separate article, Do you have enough financial protection?
“In reality, life can change quickly. Do you want to gift to a child without setting parameters around future asset ownership, should they for example, get divorced? And how much do you gift them without knocking their motivation to get out of bed in the morning? Gifting for specific purposes and objectives such as buying property, is typically the first major wealth transfer point. Taking the time to plan carefully and to think things through, is rarely a bad idea.”
From a philanthropy perspective, there is also value to be found in a longer-term approach. “Life experiences can be a rich source of donor motivation, and a key driver in donor decision-making,” says Juliet. “Developing a deep understanding of the issues you truly want to get behind, and the vehicles which you think can help you to have the best impact, can be extremely helpful. The adage of ‘less speed, more haste’ can also enable families to work together, to role model positive behaviours with children, and to bond over time, as they collaborate on their donor goals.”
“There’s a cold, financial reality to consider too. The charity sector is thirsty for multi-year, longer-term, strategic support because it gives them more security (than ad hoc gifting can do),” offers Juliet. “Donating once you’ve taken some time to consider your strategy and over a number of years can be highly beneficial. I would reiterate, though, that the earlier you start giving, the more benefits you’re likely to see and experience in your lifetime – both for the beneficiaries of your giving and for yourself. And if you wait you may never actually donate.”
3. Gifting through a will
For some people, the motivation to leave a legacy makes gifting after death, an attractive option. If this appeals to you, it’s worth exploring your estate planning options long in advance, so that your ambitions can be realised once you’re no longer around.
“It sounds like an obvious thing to say, but having a will shouldn’t be underestimated, and too many people defer thinking about it,” reflects George Hill, an Assistant Vice President in our Private Bank. “As things currently stand in the UK (as at August 2022), charitable donations made via a will, to the value of 10% or more of your baseline estate, can potentially reduce the effective rate of inheritance tax to 36%. It’s certainly food-for-thought if you’re pondering your own legacy, and the estate you want to leave behind.”
Before you get to this stage, however, there’s a more immediate consideration worth bearing in mind: “In the UK, most gifts to a person, but not charity, take 7 years to fully fall outside your estate from an inheritance tax perspective,” cautions George. “Therefore, it may be sensible not to delay gifting too long if you also want to make any meaningful gifts before you pass away.”
As Juliet reflects, posthumous philanthropy can bring its own rewards, in different ways: “On the one hand, when you have a plan clearly mapped out in a will, the pressure is off for loved ones who inherit your estate. They know what you wanted to achieve, and what you’ve allocated financially in order to do it. You may also have amassed more wealth to give by this time, which will be rewarding in one sense, but accompanied by the trade-off that you’re not seeing the results for yourself.”
“On the other hand, you might like to leave philanthropic funds for your loved ones to do with as they please. After-all, if you’re not there to see the benefits, why not leave decision-making to those who are?”
“The biggest global challenges of today, such as climate change and poverty, will need addressing long into the future. Empowering your family’s next generation to take a leading role as philanthropists, can be a great way to enhance your legacy.”
Your motivation to gift is unique to you, but there are common themes and trends worth being aware of before you do it.
Whether you’ve got philanthropy in mind, or are thinking about the mechanics of gifting to family members, there’s value in being proactive about your planning. Leave it too late, and you risk not having the desired impact on the people and things that matter most to you.
As they say, time is precious. And when it comes to gifting, good timing is key.
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