The resource for international American families

Philanthropy is a well-known part of US culture. For US citizens living abroad, charitable giving has a number of pitfalls that require careful consideration and planning.

For many Americans, charitable giving forms part of their way of life. Whether it is through regular donations to their alma mater or funding for medical breakthroughs, Americans are known for their philanthropic activities.In fact, the US is a leader when it comes to charitable donations, often giving in greater proportion than their closest counterparts. In 2017, charitable giving in the US reached an estimated $410bn[1] (£315bn), a figure that far outpaces the £10.3bn[2] given to charity in the UK in the same year.

The reason for the disparity goes beyond the scale of the US population. The political and social environment in the US is also a major factor. With lower levels of government funding for the arts, education, healthcare and the wider community than the UK, many wealthy Americans feel a greater need and responsibility to contribute part of their wealth towards these causes.

Another factor that influences giving in the US is the health of financial markets and the economy. According to Giving USA, who report on the sources and uses of charitable giving in the US, factors such as rising personal income and consumption, as well as stock market growth, are linked to positive trends in charitable giving.

Likewise, initiatives such as the Giving Pledge – the Bill Gates and Warren Buffett-led promise for the world’s richest people to give at least half of their wealth to charity – have played a major role in putting charitable giving in the spotlight.

While many people take a low-key approach to philanthropy, there is a growing trend towards giving that makes an impact. For some, it means contributing towards a so-called ‘moonshot’, which is an ambitious philanthropic endeavour that seeks to tackle a major challenge in the world.

Charitable giving for US expats

No matter a person’s approach to giving, US citizens living in the UK face a challenge when it comes to charitable donations. Many US expats might continue donating to their US alma mater or chosen causes “back home” in the US, regardless of whether they’re recognised as charities in the UK. The problem is that US citizens in the UK must grapple with tax liabilities and tax credits in both jurisdictions – a situation that requires specialist financial planning.

A potential solution to this issue is to donate to charity through a vehicle called a Donor-Advised Fund (DAF). A DAF is a philanthropic fund held within a charitable organisation that allows donors to receive immediate tax relief on their contributions and then make donations from the DAF to specific charities over a period of time.

In many ways, a DAF is similar to a savings account but for donations. Rather than the funds going to a charity straight away, they remain in an account and can be managed by an investment manager in order to increase in value or deliver an income for annual donations.

A DAF can offer clear advantages for those seeking a simple solution for their charitable donations. First, it is cheaper than launching a charitable foundation. Second, it allows for quick financial planning decisions and tax reliefs without requiring an immediate decision on where exactly the funds should be donated. Third, the donor retains an element of control because the funds remain visible and will only be deployed when instructed. And finally, certain DAFs can facilitate donations to charities in a range of different countries, regardless of the residence of the original donor.



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