Greater financial and regulatory certainty have spurred wealthy philanthropists to ramp up their giving programs, writes Simon Mumme.
Andrew Thomas and his philanthropic services team at Perpetual were busy for all the right reasons at the end of June. Many of their wealthier clients were either distributing through their charitable trusts, or adding to the corpuses of their philanthropic funds before the end of the financial year. How different the story was just one year ago.
“In mid-2010, we are in a much better position than mid-2009, when philanthropy almost stalled because of uncertainty around the guidelines for private ancillary funds [PAFs] and the global financial crisis,” Thomas says.
“We now have more economic certainty, and certainty around PAF legislation, so that’s increased philanthropic giving leading up to June 30.”
Thomas’s clients were among the many high-net-worth individuals in Australia fuelling a revival in giving after the financial crisis undermined confidence, and the Federal Government’s review of the rules governing PAFs stalled some donors’ plans.
The Government mulled over the idea of setting a compulsory annual distribution rate of 15 per cent, which was deemed by many donors to be ultimately counterproductive because it could, over time, erode trusts to nothing. In the end, the Government agreed with the 5 per cent distribution rate recommended by philanthropists.
But now philanthropists in Australia are giving in force and maintaining the trend of increased giving seen in the past decade. The volume of tax-deductible donations has increased by 300 per cent in the 10 years to 2007-08, rising from $600 million to $2.35 billion, Thomas says, citing statistics from the Australian Taxation Office (ATO).
Wealthier people are leading the way: 63 per cent of people earning more than $1 million each year make tax-deductible donations, the ATO figures show. In 2007-08, as the financial crisis began to take hold, but before the calamitous fall of Lehman Brothers, their average donation was $102,543 – more than double the $48,548 average in 2006-07.
“So while everyone is increasing the amount they give, it is [among] the high-net-worth individuals (HNWIs) where the recent growth in giving has been the highest,” Thomas says.
And while men give a larger average donation than women, women give a larger percentage of their taxable income.
Thomas says the major driver for this surge in philanthropy is the general willingness of Australians to give, combined with non-profits’ increasing nous in seeking donations, and their ability to explain how funds are used.
This gives philanthropists more confidence in the impact of their donations and increases their interest in charities’ work, engendering a closer involvement.
Also, more foundation or endowment structures have been developed to suit a wider range of philanthropic aims and, crucially, allow donors to use donations to offset tax liabilities – a feature that clinches the deal for many philanthropists. Before the arrival of prescribed private funds – the predecessors to PAFs – in 2000, philanthropic structures were restricted to estate plans.
Contributions to the newer trusts are invested in a tax-free environment and can generate a sustainable stream of distributions that is “far more important than any one lump sum” donation to recipient charities, Thomas says.
“The structures are available for people to make a long-term difference – not just for multimillionaires; there are structures for people to give at much lower levels.”
Perpetual oversees more than $1 billion in charitable fund assets as a manager and trustee. But besides being a destination for philanthropic funds, it also runs educational seminars and one-on-one workshops with financial planners to brief them on the subject.
“Often organisations will contact us for specialised advice around philanthropy,” Thomas says.
“It’s something their clients have a need for, and they might not be experts, and it can give financial advisers the confidence to talk about philanthropy with their clients.”
This not only means being able to recommend the most suitable giving strategy for donors, but which organisations they should support. Here planners need to be able to measure the relevance a charity has to their client’s philanthropic aims, and to monitor the effectiveness of the charity’s work.
“Accountability is important. If a client is giving away money, what difference is it going to make, and what’s the timeframe around that?”
Thomas says advisers’ general level of awareness about giving strategies is definitely growing.
“But it’s one of those areas where the more you look at it, the more you understand how deep it is. Some clients have specific needs around who they want to see benefit,” he says.
