In recent years, my colleagues at Independent Wealth Partners and I have noticed that philanthropy is becoming more front-of-mind with clients.
The conversations are not just “where do I put my money and what return can I achieve?”, but also what is meaningful in life. We tend to have conversations about philanthropy as part of a client’s overall life plan.
While it’s always possible to give money to an organisation as a one-off donation, we typically encourage clients interested in philanthropy to adopt a structured, long-term giving model.
Part of my role is to make people aware of what is possible and, particularly, the difference between making a one-off donation and creating a lasting legacy.
Effectively there are two options under a structured long-term giving model: a client can create their own private ancillary fund (PAF); or they can establish a charitable fund account (or sub-fund) within a public ancillary fund (PuAF).
Over the past 10 years we have introduced several clients to the Melbourne-based Lord Mayor’s Charitable Foundation and helped them establish their own public charitable fund accounts.
Celebrating its centenary in 2023, the Lord Mayor’s Charitable Foundation is Australia’s largest and oldest community foundation. As part of its relationships with financial planners, it provides accessible high quality low-cost giving options to help advisers’ clients achieve their philanthropic goals.
Most people believe that when you start giving to charity you give away your money and it’s gone. The idea of using a PAF or a foundation is that you are creating a sustainable giving model — that’s the magic of it.
Say a client has $100,000 to give. Instead of giving that money to an organisation as a one-off donation in a single year, they can place the funds in a PAF or a charitable fund account and provide the earnings to that organisation every year in perpetuity.
As the client contributes to the fund it gets bigger and the annual distributions can be even more meaningful — it’s actually connecting the client to their giving and making them actively involved each year.
Often people will start a fund because they have had a significant tax event — a business is sold or they have a significant capital gain — and they know that every dollar they put into a PAF or charitable fund account will be tax-deductible.
Key considerations when reviewing a private versus a public fund are the amount of starting capital; the extent to which a client wants to be involved in the management and investment decisions; and the time and cost associated with running a PAF.
A PAF needs a certain level of capital — more than $1 million — to make it cost effective to operate. But a charitable fund account with the Lord Mayor’s Charitable Foundation, for example, can be started with $2000 and annual giving can commence when the balance reaches $10,000.
The Foundation’s Investment Committee oversees investment decisions, with some $245 million in total equity at the end of the 2022 financial year.
The administration and governance are also looked after by the foundation so clients don’t have to worry about the obligations of tax returns and financial statements or determining the DGR (deductible gift recipient) status of the organisations they are giving to.
While the Lord Mayor’s Charitable Foundation has four “impact areas” and numerous charities within those pillars that it supports, the holders of charitable fund accounts are able to recommend alternative organisations to fund and the foundation will complete the due diligence required to ensure they satisfy DGR 1 status and present recommendations to the foundation board.
If you have enough starting capital it comes back to the very personal choice of whether you want to administer a PAF and make the investment decisions yourself or stand back a little and leave that with someone else.
Another element that can be understated is that your client can join a network of people who think the same way, if they choose to do so. The Lord Mayor’s Charitable Foundation has very good networking functions where people who are passionate about philanthropy get together and talk about giving. That in itself is unique.
Clients Angela and Paul Wheelton introduced me to the Lord Mayor’s Charitable Foundation and are passionate advocates for the organisation.
Paul runs the successful Wheelton Group, which commits a minimum of 20 per cent of its yearly earnings to philanthropic projects. The business has grown from its automotive rental background into holiday accommodation in Queensland and Bali, where 100 per cent of profits are directed towards philanthropic projects.
He encourages his four children into their own philanthropic journey by allocating $20,000 to each of them each year from his Lord Mayor’s Charitable Foundation fund distribution so they can engage and make grant recommendations to charities of their own choosing.
Paul said that while the foundation is historically Melbourne-focused and has its highlighted pillars of philanthropy, each of the pillars is extremely broad and offers a range of fulfilling challenges.
More recently I introduced Anthony Dalleore to the Lord Mayor’s Charitable Foundation and he established the Anthony Dalleore Educational Fund with the aim of creating an education scholarship to recognise and encourage future business leaders.
Anthony’s aim is to build his fund to a stage where it generates $10,000 to $15,000 a year of passive income that can be applied to the scholarship.
In addition, establishing a charitable fund account with the Foundation has meant becoming part of a community of values-driven individuals. For Anthony, this feeds his passion for ongoing learning and community-based action.
The Lord Mayor’s Charitable Foundation now has more than 270 charitable fund accounts established by individuals, families and organisations and the number grows each year. In the 2022 financial year it distributed almost $12 million in grants including more than 400 donor-advised grants.
Independent Wealth Partners is not only directing clients towards the Lord Mayor’s Charitable Foundation, we have also just established our own charitable fund account to which we contribute a portion of monthly revenue.
Even though we have in-house accounting and the capacity to establish a PAF ourselves, the time involved in management and operation means we would rather outsource that and establish a charitable fund account with the foundation.
We are passionate about giving and doing some good in the world and are keen to bring our staff along on that journey. For us, financial literacy is very close to home so we will probably look to help disadvantaged people learn about money with the proceeds of the fund.
Shane Nicholas is a principal of Independent Wealth Partners.
