The Sunday Times - UK (2021-12-19)

14 The Sunday Times December 19, 2021

MONEY

J

ohn Starbuck has an unusual dilemma: he is struggling to give away an “embarrassing” amount of money. The former nuclear technical manager has no children and a multimillion-pound estate after years of saving and investing. Starbuck, 67, wants to leave most of his assets (after a few family gifts) to an environ- mental charity set up in his name. “I want to do some real good — something really, really good,” he said. “I’m compelled not to take the easier option of giving to existing charities and want to explore starting a unique charity to save the planet from human beings.” Starbuck, from Cumbria, hopes that his estate could create about £100,000 to £150,000 a year in investment returns that would provide grants for those working on solutions to climate change, but has “hit a wall of fog” in his struggle to find out how to get the ball rolling. He said: “There’s plenty of help for married people or widowers who want to set up trusts or the like for their descend- ants, but there seems to be a vacuum of advice as to how to set up one’s own charitable fund.” Starbuck’s estate is mostly made up of investments and savings. He owned his three-bedroom home outright by the time he was 35, and then put any leftover money into Isas each year. “I had no wife or kids to spend the money on, so I just put every spare penny I had into paying the mortgage off,” said Starbuck, a keen mountaineer. He was one of the first to climb Gunnbjorn Fjeld, the highest peak in the Arctic, in winter. “I lived on bare floorboards and the only luxury I had was a colour telly. I was on a professional salary, so I paid off the mortgage within five years, and then directed the money into savings. I just couldn’t spend it, it was almost embarrassing. What do I want a Ferrari for? I’m an expeditioner, a mountaineer. All I need is a tent.” Starbuck plans to continue saving and puts away most of his £34,000 pension income each year. He gets £18,000 from a defined benefit scheme, £8,000 from an annuity and £8,000 from the state pension. He makes a further £2,000 from investment dividends and £5,000 from fixed interest bonds, then withdraws as much as he can from his self-invested personal pension (Sipp) each year without hitting the £50,000 higher-rate income tax threshold. Much of this money is saved or invested. Starbuck puts £20,000 a year into cash Isas (the maximum Isa allow- ance), and the rest is invested in venture capital trusts (VCTs), which are investment trusts that provide 30 per cent

A careful investor wants to use his money to help the planet, but found that setting up a charity is not that easy, says Imogen Tew

Help!

He could, for example, set up a fund called the John Starbuck Fund for the Planet, leave most of his estate to it in his will and provide instructions on how it should be managed. The umbrella charities charge fees, but they are proportionate and go towards running the main charity.

How to give in your will If you want to leave some of your estate to existing good causes, make sure you specify the individual charities (and ide- ally the charity numbers) in your will. You should state the amount or propor- tion of the estate to be left to each charity. It is a good idea to ensure that your family know of these wishes because any financial dependents can contest charitable giving. If you leave 10 per cent or more of your estate to a charity in your will, your other beneficiaries will pay a reduced inheritance tax rate of 36 per cent. If you have any defined benefit pensions, these are generally not included as part of your estate, so any instruction in your will may not apply to them. To make sure they go to a charity, you need to fill out the expression of wish (sometimes known as thenomination of beneficiaries) form from your pension company and give the details of the charities to which you want to leave the money. Leaving money to your family mem- bers follows the same process, and the easiest way to ensure the right people get the right amounts is to prepare a will. If you do not have one, the rules of intes- tacy apply, so the money would go to your spouse or civil partner, then your children or, if you were unmarried and childless, other close relatives. Any gifts you make at least seven years before you die are free from inheritance tax, but you also get £3,000 of gift allow- ance a year that is free from inheritance tax, even if the gift is given the day before you die. You can also make regular gifts that do not attract inheritance tax, but you have to be able to prove they are regular, come from income and do not compromise your own standard of living. If you want to leave your defined con- tribution pension to a specific family member, you should fill out the expression of wish form. While the trustees of your pension would probably take your will into account, it’s possible it could end up in the wrong hands if you do not explicitly state what you wish to happen to it. Becky O’Connor from the investment platform Interactive Investor said: “If you want to leave a legacy and have a clear idea of who you want to receive it, it’s really important to fill in both your will and the expression of wish form. “Making sure your intentions are clearly written in black and white will help avoid delays and disputes between beneficiaries, whether they are relatives or charities, when you die. If you filled out these forms many years ago, it’s a good idea to review them and check they still reflect your wishes.”

A Ferrari? What would I want one of those for?

income tax relief. VCTs invest in small or young businesses so can provide a higher return, but are often riskier than more traditional stock market investments. He lives off the £12,000 a year dividend payments from his VCT investments. His goal is to have most of his estate in VCTs and cash Isas when he dies. Starbuck is hoping to continue this tax- efficient money management in his will — there is no inheritance tax to pay on any- thing left to a charity. The tax is normally levied at 40 per cent on an estate’s assets above £325,000 (£500,000 if you leave your home to your children or grandchildren), so giving to a charity can be a tax-efficient way of passing on money to something you care about. Starbuck does not yet have a will. This means that, by default, his entire estate would be passed to his brother and everything over £325,000 would be taxed at 40 per cent. If he had been married it would have passed to a spouse entirely tax-free. To make his wishes come true, Starbuck needs to create a charity, then leave his money to it in an up-to-date, valid will.

How to set up a charity You first need to ensure that it has a charitable purpose and is for the public benefit. There are various categories you could choose, including relieving pov- erty, education, the arts and, the one that interests Starbuck, the protection of the environment. You then need to decide who will be your trustees, who will run the charity. You can search for people on websites such as Trustees Unlimited and Nurole, or ask friends and family. Next, figure out which legal structure to use: a charitable company, which is registered with the Charity Commission and Companies House; a charitable incorporated organi- sation, a bespoke legal structure structure for charities; or a trust, which is typically easier to set up, but can lead to trustees having personal liability. The next stage is to draft governing documents that outline the charity’s purpose, who will run it, any rules about trustees’ payments and how to close it. Then you can apply to the Charity Com- mission, which will ask how the charity will work for the public benefit, funding details and the expected activities, and register it with HM Revenue and Customs to ensure that it is recognisable as charitable for tax purposes. If Starbuck is able to do this in his life- time he will be able to leave most of his estate to the charity by creating a will that clearly expresses these wishes. He does have other options, however. He could set up his will with instructions to create a charitable trust with his estate when he dies, requiring his executors to set this up. He would need to write detailed let- ters about his wishes on how the charity would be run. Starbuck could also opt for a donor-- advised fund. These are established under an existing umbrella charity already registered with the commission.

John Starbuck paid off his mortgage at 35 and said mountaineering is the only thing he spends money on

I want to give

away a fortune

(but don’t know

where to start)

One of Britain’s biggest financial companies is pocketing fees from a retired expat who was mis-sold a pension while living abroad. David Rowland, 68, was persuaded to transfer a final salary pension and others to a Quilter International pension by a representative of the regulated advice company Omega Financial Solutions in 2017. Rowland, who lives near Alicante in Spain, was a low to medium risk investor, but the adviser convinced him to move his pension to a high-risk product that resulted in a loss of £117,800 in pension benefits. The adviser’s business failed in 2019, and Rowland was awarded £85,000 by the Financial Services Compensation Scheme (FSCS), the safety net for savers, this year. Rowland still has some holdings in his

Quilter portfolio on which he pays fees, and he also pays a £450-a-year management charge to Quilter. Quilter International does not provide advice, but it offers a portfolio service that advisers can use to move UK pensions to overseas schemes, including risky unregulated products. It has paid advisers commission of up to 7 per cent to attract business and takes fees based

on the amount of money a customer transfers. Pension providers say that investment decisions are the responsibility of their customers and advisers alone, but there is growing pressure on them to take more responsibility over what their clients invest in. Last week The Sunday Times reported how a group of low-risk investors found that their pensions had been moved to an unregulated property fund by an adviser who was later found to be a fraudster who forged client signatures. Millions of pounds poured into the property fund via a Quilter International pension without the company noticing. The fund froze withdrawals in 2008. While the victims were able to make claims with the FSCS after their adviser’s business failed, Quilter International continues to pocket thousands of pounds

a year from them as their money is still locked away. Their Quilter International bills have recently increased. Quilter International will not discuss individual cases after it was sold by Quilter Group to Utmost Group on November 30. In a previous statement, Utmost said: “The provision of good customer outcomes is central to Utmost Group’s strategy, and we take our obligations seriously. “The Group is continuously working to improve customer outcomes. We apply the highest standards to the advisers we work with and work with advisers to ensure that customers’ outcomes are paramount.” Rowland, who lives with his wife Carol, 64, was helped to make the FSCS claim by High Street Solicitors in Liverpool. The FSCS is a free service. A law firm can help, but expect to lose part of your compensation in fees.

Profiting from a mis-selling victim

Ali Hussain

David and Carol Rowland, who live in Alicante, Spain

John Starbuck wants to make sure his millions do good when he dies — but it’s not easy, he tells Imogen Tew

Only 12 UK funds managed by stockpickers have outperformed the market for five successive years. Analysis by Quilter Cheviot, an investment firm, found that of the 212 actively managed funds in the UK All Companies sector — those that invest in companies of all sizes — 12 had outperformed the FTSE All Share index that tracks the UK stock markets every year since 2016. A further 46 funds had outperformed the index in four of the five years. Active managers also struggled against the US index. Three of 123 funds in the North America sector, which invest in US stocks, outperformed the S&P 500, which tracks the biggest companies in the US. Actively managed funds, where stocks are chosen by

stockpickers, have become less popular due to the rise of passive investing. Passive funds, which are typically cheaper, track an index. Investors have turned to them off the back of strong stock market growth and the demise of a number of high- profile active managers.

Managed funds did better long-term against the indices — 57 per cent of funds in the UK All Companies sector outperformed the FTSE All Share over the whole five- year period, and 40 per cent of the North America funds beat the S&P 500. US markets have greatly outperformed UK markets in the past five years. The S&P 500 is up 100 per cent, while the FTSE 100 is just 3.7 per cent higher than it was in 2016. “Investors are certainly paying close attention to short-term performance, with some successful funds being reviewed after weak recent periods,” Nick Wood from Quilter Cheviot said. “But this really opens up the question of whether we need the funds we invest in to be persistently successful over every calendar year, or if there should be a certain amount of leeway.”

The 12 UK funds that did better than the index for five years are: Dimensional UK Core Equity, Abrdn UK Mid-Cap Equity, NFU Mutual UK Growth, Liontrust Special Situations, BMO Responsible UK Equity, GlobalAccess UK Opportunities, Royal London Sustainable Leaders, VT Sorbus Vector, Liontrust UK Growth, Royal London UK Dividend Growth, Allianz UK Listed Opportunities and MI Chelverton UK Equity Growth. Chelverton Asset Management’s fund was the top performer this year, returning 28.11 per cent compared with the FTSE All Share’s 15.58 per cent. The three “winners” in the US were AllianceBernstein Concentrated US Equity fund, Brown Advisory’s US Flexible Equity fund and the Threadneedle American Extended Alpha fund.

Fund bosses beaten by the robots

Imogen Tew

12 Of 212 funds had 5 straight years of outperforming

100% Growth of S&P 500 index in the US since 2016

The Sunday Times - UK (2021-12-19)

Get our desktop app

Company

Features

Documentation

Resources