Knowledge hub

Exploring strategic philanthropy | How to maximise your impact

Back to insights

By Capital Partners Business Owners

Globally, there is a growing number of people and organisations that believe in the importance of giving and are proud to leverage their wealth and influence to create social change. Charitable giving has remained heightened in recent years, spurred by the COVID response, natural disasters and the many social issues that have made news headlines across the world.

We have seen an increased level of interest from our clients around the different options available for them to be able to take a more strategic approach to their long-term philanthropic giving. As well as giving to organisations where their funds will have maximum impact, donors want to understand how to maximise tax benefits and make the most of favourable market conditions.

The philanthropy industry has done a fantastic job at continuing to innovate its products to reduce costs and appeal to a broader audience. Their services are particularly useful when you are looking to contribute and invest a larger lump sum of your wealth towards your long-term charitable pursuits. Businesses can also use philanthropy to create greater employee engagement and support charities that align with the values and purpose of the firm.

Here are some options you may like to consider:

Charitable foundation sub-funds (best for contributions of $5,000 – $500,000+)

A sub-fund is a great way to start a journey into philanthropy. Due to innovations in the industry, they are now accessible with as little as a $5,000 initial contribution. A sub-fund sits within a larger public foundation and can be set up in your personal name or the name of your business. Contributions into the fund can be received from anyone – for example, yourselves, your business or your employees and are tax deductible. The ongoing governance, investment, compliance and administration are managed by the company behind the public foundation for a reasonable fee. You are required to donate a minimum of 4% of the value of your fund each year to the charity of your choosing.

If you are unsure about which charity to support and how reputable they are, there are organisations such as ChangePath that rank all the charities based on transparency, financial sustainability and impact. You can also get great support from the advisers at the public foundation to help you narrow down the charity(s) that align most closely with your values. A sub-fund is a great option if you want control over the giving, but don’t want to be bogged down by the technical details and governance of a fund.

Private ancillary fund (becomes cost-effective for contributions above $1M)

For some business owners, having full oversight and control of the governance and investment strategy of their philanthropic fund is important. Typically, this would be driven by families that have more funds available to invest in philanthropy and were happy to personally dedicate substantial time to the process. In this case, a Private Ancillary Fund (PAF) may be the best option. When a family or company start a PAF, they are setting up their own personal philanthropic structure and are responsible for all Trustee obligations under the relevant legislation. As you would expect, the cost structures are higher and usually become an option when you are willing to contribute over $1M towards your long-term charitable pursuits. Given the complex legislation surrounding philanthropy and penalties for the Trustee if you are non-compliant, families that set up a PAF would still typically seek advice from experts to give them confidence and peace of mind.

Takeaway

It is an incredible gift to be in a position where you can help people or give to causes that are close to your heart. Involving your children (family) or employees (company), can be a great way to impart your values and create a multiplier effect where people are encouraged to think beyond themselves to how they can impact the world around them. If this style of philanthropy resonates with you, reach out to your adviser to have a chat about how to begin your journey.

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

Ideas & insights

Knowledge Hub

Do you need a financial health check? Here’s how to tell

Wealth Planning • Article

Discover the power of a living legacy in intergenerational wealth planning

Wealth Planning • Article

Preparing for Australia’s great wealth transfer | A roadmap for families

Wealth Planning • Article