How can I become a philanthropist?

How can I become a philanthropist?

Caitriona Fay

Philanthropy is growing in Australia, yet many people find it difficult to know where, when and how to start. Here, Caitriona Fay from Perpetual, outlines how you can give without breaking the bank.

It might sound somewhat counter-intuitive but your wealth should not determine whether you consider philanthropy. Philanthropy, and the way people give, has evolved over time. Contrary to what we sometimes read, see or hear, philanthropy is not just for the super wealthy. A simple, structured giving program can be established with a donation of just $20,000.

Miles Franklin, author of My Brilliant Career and one of Australia’s most famous philanthropists for establishing the Miles Franklin Literary Prize, established her foundation with a gift of about $17,500 in 1954. The initial modest funds have grown to more than $1 million today, while the income earned from that single donation in 1954 has seen more than $1 million distributed to talented authors.

 

As we get older, we all spend time considering our lifestyle goals, how we want our retirement to look and provisions for our family members. Philanthropy should form part of this thought process. Retirement provides an opportunity to focus on things we are passionate about. Equally, while considering intergenerational transfers of wealth, many families use philanthropy to help develop their children and grandchildren’s financial literacy by engaging them in the investments of the family’s philanthropic funds and in making decisions regarding where distributions might go for community benefit.

Philanthropy is not only achievable, but it makes financial sense. Structured giving is a tax effective means of redirecting part of your income to make a significant difference over the short and long term.

But how can you structure your giving to make an impact during your lifetime and how can you be actively involved with the organisations you support?

Private ancillary funds

The private ancillary fund (PAF) has emerged as an increasingly popular structure to give back. The same way a self-managed super fund is established for control of investment decisions and flexibility, so too is a PAF – allowing you to create your own charitable foundation and determine your level of involvement.

As well as allowing you to share your wealth throughout your lifetime, a PAF is also an effective bridge to a lasting family legacy, as several generations can be involved in the charitable activities of the trust.

The amount of funding available from a PAF relies on contributions and investment returns. This is where a charitable foundation has an advantage over direct donations to a charity. A PAF generates revenue for distribution while attempting to grow capital. Rather than providing a finite amount which may cease at any time, setting up a PAF means you can put your funds to work and provide much-needed ongoing income to the charities and sectors you’re passionate about.

Once established, a PAF can be topped up through bequests from your estate, which are not subject to capital gains tax, and incorporated into your will to ensure it serves your intentions in perpetuity.

Public ancillary funds

A simple and easy option is to give by setting up an account within an already established public ancillary fund (PuAF). These PuAFs, such as the Perpetual Foundation or a community foundation, provide an already established trust structure under which individuals or families can set up named endowments. These funds cut out the individual compliance, investment and trustee burden that can detract from the satisfaction of giving. Typically, these funds utilise the power of a pooled investment strategy and each year, the income earned is available for distribution to not-for-profit organisations or charities recommended by you.

Through the establishment of an endowment account, you make your donation work for you by generating sustainable income streams for annual distributions. Critically, when invested prudently, the capital value of your donation can be preserved for the future, allowing you to lay the foundations for a lasting individual and family legacy.

Tax benefits

The tax benefits offered through a structured giving vehicle are significant. All gifts are deductible up to the limit of your taxable income and deductions can be spread over a period of up to five years. In short, these vehicles allow you to optimise your tax situation while also maximising community benefit.

When it comes time to deciding where you’d like to direct your funds, working with a trusted adviser can assist with applications, research and support. An expert can conduct a comprehensive research and grant process to help you ensure your funds are used by not-for-profit organisations as intended and have a lasting impact. This usually involves a rigorous review of the quality of an organisation’s governance, strategy, outcomes, capability and leadership.

Whether it’s tax, retirement or even estate planning, you should be thinking about philanthropy or raising it with your adviser. Engaging with philanthropy has never been simpler with private ancillary funds and accounts in public ancillary funds available to help structure your giving. The many reputable philanthropy service providers across Australia mean that support in running the foundation and making grants is now easily accessible.

Caitriona Fay, philanthropy and non-profit services national manager, Perpetual Limited

How can I become a philanthropist?
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