There are a range of philanthropic options available to planners and their clients.
Philanthropy is the planned and structured giving of time, information, goods and services, influence and voice, as well as money, to improve the wellbeing of humanity and the community. Whilst many people know what philanthropy is, it seems many professional advisers are failing to discuss the benefits with their clients.
Research undertaken in 2016 by Queensland University of Technology’s Australian Centre for Philanthropy and Non-profit Studies, reveals less than 10 per cent of professional advisers have discussed philanthropy with their high-net-worth clients.
Following the recent Royal Commission into the financial services sector, there is real opportunity here for financial advisers to lead the charge and help grow philanthropic giving in Australia.
There are many benefits of being philanthropic – far more than just claiming a tax refund. In fact, data from the ATO shows that around 43 per cent of taxpayers with a taxable income of more than $1 million did not claim a deduction for donating to a ‘deductable gift recipient’ in 2015-16.
That’s an astounding figure, and one where advisers can help make a real impact for their clients and the community. Not only can you advise your clients on the benefits of being philanthropic, but you can also help them maximise their financial benefit.
I’m also more than a little surprised to see data from the Australian Centre for Philanthropy and Non-profit Studies that suggest only one in five advisers have discussed philanthropy from the beginning of the relationship with their clients, whilst nearly one-third of all advisers do not expect the topic to arise.
Some key things to consider
At Philanthropy Australia, our mission is to represent, grow and inspire an effective and robust philanthropic sector for the community. To do this, we seek to grow the profile of philanthropic practice and educate the community on its role and the different types of options available.
There are many things to keep in mind when you speak with your clients about philanthropy. Your client might be considering giving as an individual, a family, a community or as a business. No matter who they are, it’s important to understand what type of structure will suit them best, or indeed, if they need one at all. The main things to consider are the ‘why’ and the ‘how’.
The ‘why’
It requires intimate and personal conversations to determine what your client wants to achieve or do through their giving. Using a structured giving vehicle allows people to give strategically, with intent and design, and to create a financially sustainable engine that fuels giving long into the future. Common reasons and motivations for structured giving include:
– To enable and pass on family values and culture – involving children and/or other family members in giving, which can connect and engage the family over generations;
– To experience giving while alive, and to learn and enjoy from it;
– To ‘give back’ – a way to recognise the personal opportunities your client may have enjoyed and provide the same to others;
– To pursue a passion or interest, creating positive change;
– As a response to personal loss or challenge where your client can help others mitigate or avoid the same, or to create a living memory for a loved one; and
– As an opportunity presented by some sort of financial trigger (e.g. a capital gains tax liability or an inheritance) where a structured giving vehicle can be integrated into effective financial planning.
The ‘how’
The ‘how’ needs to be directed by the ‘why’. In addition, you need to consider how much your client would like to give, and over what time frame; what degree of control or involvement they want over the various aspects involved (from grant making to investment of funds to administration); what type of decision-making processes they want to use; and how much flexibility they want into the future over the remit and purpose of the giving.
A philanthropic structure may not be needed if your client is only giving a one-off amount, giving for a short period of time or they are only giving a relatively small amount each year (for example $10,000).
A formalised structure may not be needed if your client doesn’t require tax deductibility and/or it is easier for them to donate directly to a charitable organisation.
For some clients, a philanthropic structure may be the best option. Core options for your clients include:
– Sub-fund in a Public Ancillary Fund (PuAF).
– Private Ancillary Fund (PAF).
– Testamentary or Will Trust.
– Private Charitable Trust.
The legal, financial and operational requirements, and the cost of the giving program, are influenced by the type of structure your client sets up, so it’s important they choose the one that will work for them. If you, or your client, are unsure about the best option, Philanthropy Australia can provide your clients with initial guidance on establishing a structured, strategic approach to your giving.
Sub-fund in a Public Ancillary Fund (PuAF)
This might be a community foundation, or a charitable trust fund run by a not-for-profit, trustee company or wealth adviser.
A PuAF must be controlled by a committee – the majority of whom are ‘Responsible Persons’ (people with a degree of responsibility in the community) under the Public Ancillary Fund Guidelines 2011.
Grants or donations from the PuAF can only be made to charitable organisations that are endorsed as DGR (deductible gift recipient) Item 1 by the ATO. Sub-fund donors can have an individually named account to which their tax-deductible donations are credited, and they may make recommendations on the organisations to receive distributions of grants from that account.
There is usually an annual minimum distribution requirement of 4 per cent (of the net value of the fund at 30 June the previous year).
Private Ancillary Fund (PAF)
A PAF is a trust fund for businesses, families and individuals, and set up under the Private Ancillary Fund Guidelines 2009. The trust fund is controlled by a company, usually with family members as directors, and at least one independent ‘Responsible Person’ director (someone with a degree of responsibility in the community).
Family members can make tax-deductible donations but PAFs cannot solicit funds from the public. Grants or donations from the PAF can only be made to charitable organisations that are endorsed as DGR Item 1 by the ATO.
There is usually an annual distribution requirement of 5 per cent (of the net value of the fund at 30 June the previous year).
Testamentary or Will Trust
These trusts are established by the will of the benefactor and do not come into operation until after his/her death. They can attain income tax-exempt status as a tax concession charity from the Australian Charities and Not-for-profits Commission (ACNC) but donations to them are not tax-deductible. They must fund the charitable purposes specified in the will.
Private Charitable Trust
These trusts are established by a donor through a deed with a charitable purpose. They can attain income tax-exempt status as a tax concession charity from the ACNC but donations to them are not tax-deductible. They must fund the charitable purposes specified in the deed.
Open up the discussion
I hope this information helps open up your discussions with clients about becoming more philanthropic. For individuals, families, corporations or government agencies looking to set up their own philanthropic structure, Philanthropy Australia can support them through the process and help work out which options may be appropriate.
Sarah Davies is CEO of Philanthropy Australia, the peak body for giving in Australia.
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