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Philanthropy Opportunity, obligation or both

With 30 June approaching there is the usual flurry of activity within philanthropic circles. Private Ancillary Funds (PAFs) and Public Ancillary Funds (PuAFs) look to ensure they have met their minimum donation requirements for the year. Private donors, or even those just seeking a tax deduction will be looking to ensure payments are made and the various charitable organisations that are the recipients of such activity will all be ramping up their fundraising efforts.

Whilst some may see it as a tax driven activity, the importance of philanthropy has become increasingly evident in current times. Housing affordability, cost of living challenges, homelessness and the domestic violence crisis are filling media content across all platforms. Whilst governments at all levels are purporting to bring in measures to assist, it will simply never be enough. As individuals and as a society, we have a responsibility to assist those in need and do what we can to make our community, our country and even the globe a better place.

Conversation on this topic raises the question, is philanthropy and opportunity, an obligation or both?

For many individuals and families, philanthropy is an opportunity to create a positive impact on society. It allows them to use their wealth, resources and relationships to support causes that they are passionate about and make real differences where such impact is needed the most. Additionally, it can provide a sense of fulfilment and purpose.

On the other hand, some will argue that philanthropy is not just an opportunity, it is an obligation. As members of society, we have a responsibility to use our resources to address pressing social needs and contribute to the common good. This may be considered especially true for those who have been fortunate enough to accumulate significant wealth, as they have a greater capacity to make a difference.

Regardless of whether philanthropy is seen as an opportunity, an obligation, or both, it can have a profound impact on both the recipients and the givers. Through philanthropy, we can address social inequalities. We can educate our children and future generations about the importance of giving back and the power of collective action. We can also use it as a tool to prepare the next generation for the responsibility of managing the family legacy whilst making such an impact. One such tool is the use of a PAF.

A Private Ancillary Fund (PAF) is a charitable trust established to facilitate an individual or family’s personalised giving program. All donations to the fund are tax deductible, and all income generated within the PAF is tax-free. Some of the characteristics of a PAF include:

  • A board of directors, including at least one independent, ‘responsible’ director
  • Minimum distribution of 5% of the fund on an annual basis
  • A governance structure which may include
    • Annual audit (depending on the size of the fund)
    • Investment Committee and policies
    • Giving committee and policies
    • Regular reporting on 
      • Investment performance
      • Impact of activities undertaken and donations made

Provided some minimum standards are met, the structure can be as flexible or robust as the stakeholders require. Family members can observe and participate to any level considered appropriate.

At its simplest, those involved in the fund operations, investments and direction of the funds giving will need to:

  • Choose how to invest the capital – make the balance sheet work.
  • Earn a minimum return over 5% if the wish is to keep the fund in perpetuity – earn more than you spend
  • Liaise with independent directors, professional investment advisors and professional service providers (accountants and auditors) – engage with your advisors
  • Decide who is to receive the fund distributions, there are literally thousands of eligible recipients with needs and there will never be enough dollars to help them all – make hard decisions.

This is an excellent environment to educate the next generation whilst also making a positive impact.

As a multifamily office, we understand the critical role that philanthropy plays in our clients’ lives. We are committed to helping our clients identify and achieve their philanthropic goals, whether such goals are seen as opportunities, obligations, or both.