Profile Blog

Philanthropic Giving

By Todd Stanford, Senior Financial Planner

Introduction

Australia is traditionally a giving nation. Australian’s have a deep-seated code of ‘mate ship’ believing that everyone is entitled to a ‘fair go’. If one of us is in need then we rally together to support those less fortunate (e.g. just recall natural disasters such as bush fires, cyclones or tsunami). Many of us have and still do donate to a charity on a regular basis. Others make ad-hoc donations to various charities when approached (e.g. Red Cross door knock appeal).

You don’t have to be wealthy to be philanthropic. Many people give little or no money but rather volunteer their time and/or expertise in their local community and/or to a charitable organisation. For wealthier Australian’s who make larger donations it is often more effective to channel giving ideas into a planned giving vehicle such as their own Private Ancillary Fund (PAF).

In what is the first of a series of three articles on philanthropy, we provide insights into what is philanthropy, some motivators on why people give, examples of significant philanthropists and explore avenues on how to give. Finally, we provide a link to on-line resources should you wish to read further.

What is Philanthropy?

Philanthropy Australia provides a formal definition as ‘the planned or structured giving of money, time, goods and services or other to improve the well-being of humanity and the community”.

Philanthropy is an evolutionary process that whilst structured in nature has an exploratory side to it before an individual finally gravitates towards a core charitable preference.

In Australia there is still much discomfort in talking about giving and therefore there is very little everyday discussion or press on the topic, except for the odd article on major donations. As such Australia’s philanthropic sector is still very much in its infancy.

Philanthropy Today

The latest Charities Aid Foundation 2016 World Giving Index ranks Australia third in the World with 73% of Australians making a charitable donation.  By five-year average Australia ranks fifth in the World behind Myanmar, USA, NZ and Canada. So on a per capita basis we are a generous nation.

However, levels of structured giving here are still below those in other countries such as the United States and the UK. Many Australian’s share the view that they pay their taxes to the Government so it is firstly the government’s role to look after those in need. So ‘we just don’t have that psyche or culture in Australia where the individual fees they’re personally responsible”1.

This is evidenced in the latest Australian Taxation Office (ATO) tax return lodgment statistics where overall only 35% of individual taxpayers claimed a charitable donation2. The statistics also show the higher your taxable income the more likely you are to give. For example, 58% of those earning over $500,000 in taxable income claimed a donation.

The ATO statistics also show that of the people who could make donations via a structured workplace giving arrangement, just under 5% did so (however this has been on the rise in the last few years).

Well Known Philanthropists

In Australia well known philanthropists include Andrew & Nicola Forrest, James Packer, Gretel Packer (James’s older sister) and the late Paul Ramsay (leaving more than $3 billion to charity in the largest bequest in Australian history to The Paul Ramsay Foundation). There are many other philanthropists who choose to remain anonymous.

The top philanthropists in the world are Bill & Melinda Gates (Microsoft) followed by Warren Buffet (Berkshire Hathaway) who in 2006 vowed to donate 85% of his wealth to the Bill & Melinda Gates Foundation, as well as other foundations set up by family members. Other significant philanthropists include George Soros (Soros Fund Management), Chuck Feeney (Duty Free Shoppers Group) and more recently Mark Zuckerberg (Facebook) who established a foundation with his wife Pricilla Chan in December 2015.

In 2011 Buffet partnered with Gates in creating the Giving Pledge (https://givingpledge.org/index.html) inviting the world’s wealthiest individuals and families to commit to giving more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their Will. Andrew & Nicola Forrest were the first Australians to sign the Giving Pledge.

Motivators for giving

Giving is very personal and everyone has different motivators molded by their personal journeys in life. Often reaching a life’s turning point such as selling a business, receiving a large inheritance or the kids leaving home were the trigger.

UBS classifies philanthropists into the following categories:

  • Communitarians – like to help their local community.
  • Devout – feel a religious or spiritual motivation (or obligation) to give.
  • Investors – in search of tax benefits.
  • Re-payers – former recipients who have enough and want to give back to society.
  • Altruists – selfless donor.
  • Dynasts – giving is a family tradition and establishes a family legacy in perpetuity.
  • Socialites – enjoy fundraising events and being part of a community who share similar values

Another motivator for giving in a structured manner is it provides a platform to pass on family values from one generation to the next. It can enhance the sense of family and cement family values to be carried into the future. The Warren Buffet notion that “leaving children enough money so they feel they can do anything, but no so much that they could no nothing” was a widespread value shared by respondents in the study undertaken by QUT1.

To a small extent certain people will also give out of sense of feeling guilty about their level of wealth.

Ways to give

Giving can be un-planned (i.e. personal donations) or planned (through a philanthropic structure). Planned giving is also called ‘structured giving’. Taking the leap to structured giving can appear daunting but there are good sources of advice available.

Characteristics of structured giving are it is “often larger, more consistent, better researched and more engaging in ways beyond money – so more satisfying”1. It is focused on a narrower range of activity with the goal of greater outcomes.

Examples of planned giving structures include:

  • Charitable Foundation – Private Ancillary Funds (PAFs), Public Ancillary Fund or Charitable Trust
  • Community Foundations – sub-funds, giving circles
  • Corporate Foundations – company (via board) drives decisions and staff can donate.

A private charitable trust or PAF provides the most control over grant making decisions but is very ‘hands on’. It can be “seen as a personal statement, even if only visible among a close-knit group”1. To justify the ongoing administration costs a private trust or PAF is recommended to have capital of at least $500,000. Otherwise donating to a Public Ancillary Fund or a community sub-fund may be more effective.

This flexibility within Australia’s philanthropic landscape to generally meet most people’s needs and preferences is a positive. A study by the Queensland University of Technology in March 2012 concluded that in Australia structured giving is “a kaleidoscope – the sheer variety of structures, approaches and activities is significant”1.

Our next blog will dive into PAFs in more detail. Introduced in 2001, PAFs now attract nearly 20% of all deductible gifts and is the favored giving vehicle used by wealthy Australians.

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