Giving philanthropy centre stage

For some, there are key periods of the year due to which philanthropic activities are undertaken, whether it be the often-isolating feelings of the festive season; the harsh chill of the winter months; or when a new financial year tax strategy is being meticulously mapped out. But the practise of giving to those in need must extend beyond particular times of the calendar to be regarded as a key component of our moral and financial obligations – as well as to be most effective for the charities involved.

There are many reasons why people decide to engage in philanthropic endeavours – to provide a sense of financial obligation to those less fortunate for next generations; to actively contribute to positive change across communities; as a legacy, often in reflection of personal circumstances or experiences; or perhaps as one is able to give, they do give.

While the motivations of donors are essentially driven by the desire to contribute to a better world for all, the detail regarding execution of the strategy and the more granular giving approach, should be regularly reviewed by individuals, and indeed, their financial professionals. While leaving charitable giving to the end of the financial year, when tax advantages are being maximised, is understandable, it may not be the most effective way of implementing a philanthropic strategy.

There are some notable trends within the philanthropy sector which indicate this ad-hoc trend could be changing, and that people are beginning to regard philanthropy alongside more traditional aspects of managing their financial position and strategy. Statistics shows that philanthropic giving in Australia is on the rise, increasing $1 billion to $121 billion over the past two years – with this expected to continue to grow. 

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As well, those financial advisers who raise philanthropy with their clients during regular reviews, often find that strengthened client relationships, across multiple generations, result.

SOCIAL MEDIA INCREASES FREQUENCY OF GIVING

One trend to emerge in recent years has been the relatively high rates of philanthropic giving among millennials and women. For the former, social media has served to facilitate and grow this trend, and the platform also benefits the notion that philanthropy is not intrinsically linked to tax time, for example, but should be something that is routinely considered throughout the year. 

Younger generations are promoting their own charitable giving on social media through status updates and other feeds, and motivating others to give and contribute to a better community for all. More generally, online platforms, giving circles and crowdfunding initiatives are also playing an increasingly important role in Australian philanthropy and the formation of strong and diverse connections across communities.

Furthermore, women are playing an increasingly significant role in philanthropy and charitable giving, with statistics showing that donors worldwide are predominantly female (73 per cent). This is arguably being driven by multiple factors, namely women’s life expectancy rates in developed countries and subsequent inheritance from elderly parents and often partners, as well as the shift in women’s workforce participation rates.

Interestingly, research has shown that single women are more likely to undertake charitable giving, and they tend to donate greater amounts when compared to single men. Women also give to a broader range of organisations when compared to men, are more likely to act collaboratively in their philanthropy, and pool their giving with others.

There is also considerably greater transparency now with regard to individuals sharing their involvement in philanthropic causes. Unlike other countries – such as the United States – where philanthropy is significantly more culturally embedded, until recently philanthropic activities often remained largely very private with little public acknowledgement. With the rise of social media, that anonymity has given way to people actively sharing their charitable giving and, in doing so, motivating others to give too. With the rise of online platforms and crowdfunding, this trend has gained strong momentum. 

Globally, it is a time of unprecedented change within philanthropy, with an emerging cohort of substantial donors contributing directly to highly impactful community projects. It is yet another example of the changing nature of philanthropy and how it is no longer the exclusive domain of the very wealthy or seen as only a way to gain a year-end tax benefit. 

This shift has also continued to increase donor interest in concepts such as impact investing. Many charities have felt the downstream impact of this shift and are even more reliant on regular, consistent grants through charitable foundations, structured giving and bequests.

LEAVING A LASTING LEGACY

While more traditional grant-making via structured giving contributes critical funding to charitable initiatives and remains a key component of tax planning, at the same time significant global events, such as unprecedented natural disasters and mass people displacement have shaped community movements towards fundraising.

There is an increasing level of focus on sustainability and meaningful philanthropy that establishes a lasting impact or legacy. The key advantage of a structured philanthropic legacy is the ability for the donor to give back to their community, now and into perpetuity, not just through ad-hoc donations. It is regular, recurring giving that provides the most benefit.

Regardless of the structure established, all provide the benefit of enabling people to become involved in the causes that are most important to them and their families, and often bring family members, across multiple generations together to consider and discuss their philanthropic values and legacy. Fundamentally, families can be connected through a shared purpose.

For advisers, raising the subject of philanthropy is a way to more deeply understand a client’s philanthropic objectives; further strengthen trusted relationships; and establish long-lasting relationships across multiple generations, many of whom may choose to maintain and grow the charitable trust long after the original donor passes.

Philanthropy is a highly personal and often emotional journey and can be undertaken in a number of ways across an individual’s lifetime and multiple generations. Irrespective of circumstances and preferences, there is a structure that is suited to most individuals, allowing the creation of a tailored philanthropic legacy. And the right time to start is now.

CHARITABLE GIVING: HOW TO GET STARTED

There are three main options available to individuals who wish to set up a philanthropic legacy, all of which provide a structure that allows funds to be invested and managed, with income generated available for distribution to charitable entities and programs.  

Public Ancillary Fund
A Public Ancillary Fund (PuAF) is a fund usually managed by a trustee company, which allows individuals with smaller amounts available for an initial donation, to establish a charitable sub-fund during their lifetime. The sub-fund established can accept future donations from the individual; members of the individual’s family; and the broader community.  All donations received into the sub-fund are tax deductible.

A key benefit of this approach is that the minimum initial donation required to establish a sub-fund is around $20,000, which is lower than other structures, and the tax deduction from the initial donation can be spread over five years. Charitable trusts are designed to support growth capital over time, whilst generating sustainable income for granting distributions. In addition, all the investment, compliance and administrative requirements are undertaken by the trustee.

Private Ancillary Funds
A Private Ancillary Fund (PAF) is established by an individual via a Deed but is only able to receive future, additional donations from the original donors.  As a standalone trust, the fund’s financial statements must be annually audited and an appropriate investment strategy must be implemented and regularly reviewed.

The minimum initial donation required to establish a PAF is around $200,000.  This initial donation provides a sufficient capital base to seek to generate required income, in line with annual minimum distribution requirements (at least five per cent each year of the fund’s net value or $11,000 – whichever is greater – must be distributed), as well as meeting administration, reporting and compliance costs.

Testamentary Trusts
A testamentary trust is established via a clause in a Will upon the passing of the individual.  As the trust is established upon passing, the funds donated into the trust are not tax deductible.  The trust is then administered by the appointed trustee into perpetuity.  Usually, initial capital of at least $50,000 is required to ensure the trust is viable.

These structures all represent the more traditional means of establishing a lasting legacy however a key difference with regard to testamentary trusts is there are fewer limitations regarding the charitable entities to which the trust may grant funds. This can provide the individual with broader options for granting, although does mean individuals don’t see the benefit of the grants while they are alive. 

Emma Sakellaris is executive general manager at Australian Unity Trustees.