Living the Dream: Looking for your next inspiration?

Following our successful PAF Roadshow earlier this year, Philanthropy Australia’s Alison Beare was recently asked to write an article on the benefits of philanthropy for the inaugural May issue of Living the Dream magazine, a new lifestyle publication for people over their 40’s. She outlines how private planned philanthropy works, the benefits of investing in community projects in your retirement, and shows how some of our most admirable Australian philanthropists’ passions have led them to new and fulfilling stages of life.

Philanthropy is fast becoming the next buzzword for high-net-worth individuals in Australia. With levels of wealth on the rise, more and more Australians are turning their ‘incidental giving’ into a concentrated and concerted affair, central to their own, and often their families’, lifestyles.

The question that naturally follows is, ‘What motivates someone to set up their own foundation in the first place?’

I was fortunate to find some answers to this question as I travelled around the country for Philanthropy Australia’s recent national roadshow of seminars, which were designed to promote the tax-effective benefits of structured giving via two of the most popular vehicles: Private Ancillary Funds (PAFs) and Public Ancillary Funds (PuAFs). With a swag of high-profile speakers – including

money man Paul Clitheroe; Maureen Wheeler of Lonely Planet fame; Allan English, founder of Silverchef; Neil Balnaves, founder of the Southern Star Group, Australia’s largest TV production and distribution company; and Peter Hunt, chairman and co-founder of Greenhill Caliburn – I had expected a diverse range of motivating factors to be presented. But what eventuated was a set of commonalities.

Without exception, these high-profile entrepreneurs are self-made millionaires, ranging in age from early 50s to mid-60s. They all started out by giving to charitable causes on an ad hoc basis until eventually, their success precipitated an external event that became the tipping point for them to look into philanthropy. For most of the speakers, this tipping point was a large tax liability

due to a significant capital gain.

Having built their businesses during the 1980s and 1990s, these business founders were fortunate that the government introduced Private Prescribed Funds (PPFs) in 2001, which were renamed Private Ancillary Funds (PAFs) in 2009. This legislation was designed to encourage structured philanthropy, and today there are over 1000 PAFs in Australia. These PAFs hold a combined corpus of almost $3 billion, and legally they must distribute five per cent of the total corpus annually to not-for-profit organisations with tax-deductible status. Collectively, this equates to in excess of $200 million per annum. The money that goes into a PAF is irretrievable, and does not form part of the founder’s estate. The Australian Tax Office has compliance requirements, in much the same way they do with self-managed superannuation funds.

They were utterly amazed at the positive effect that giving had had on their families: largely, active involvement.

So, for our entrepreneurs, PAFs provided a tax-effective solution with the added bonus of preserving the decisionmaking over which organisations to support, and for how much, rather than leaving it to government.

What surprised me was that, in telling their personal stories, each of our speakers ended up at the same place. They had not expected to receive so much pleasure from their giving. They emphasised how much the experience had enriched their lives. They were utterly amazed at the positive effect that giving had had on their families: largely, active involvement. Philanthropy opened up discussion and debate about family values, inheritance and entitlement. In a real and meaningful way, it was the catalyst for intergenerational philanthropy, rather than just wealth transfer.

Some of the speakers talked about the active involvement of their children as trustees or board members of their PAF. Neil Balnaves stressed the importance of stepping back and transitioning to the next generation. His son Hamish is now the chief executive officer of the Balnaves Foundation.

The speakers all shared their personal experiences of gifting. For most, the process gave them new motivation and impetus, took them in new directions, and focused their giving around the causes that they were passionate about. It forced them to become more strategic in their giving. In the words of Paul Clitheroe, ‘Ask yourself who you want to give to. If the answer is “I’m not quite sure”, then [prepare for] 2000 cause letters’ [letters from causes requesting funds]. They all acknowledged that knowing what you want to support, and why, makes it much easier to say ‘no’ to other causes.

In a real and meaningful way, it was the catalyst for intergenerational philanthropy, rather than just wealth transfer.

For Paul Clitheroe and his wife Vicki, establishing a PAF has been lifechanging ‘This is a warning to you – it’s not like the other boring stuff we do,’ he said. ‘When we have a family dinner on Sunday night now, philanthropy is the only money stuff we talk about because the kids think it’s interesting.’

Peter Hunt acknowledged that being born healthy with reasonable intelligence has given him a huge advantage in life. He is personally involved in creating change – he arranges site visits to a community alongside which he works in Nakuru, Kenya. At times he lives there, he enlists the support of his corporate network, and he uses his business acumen to assist in the operation of a primary school, an orphanage, a medical clinic, a farm and a business school that provides training and micro-finance to women. The capital to support this project, and others in Australia, comes from Peter’s PAF, and he is focused on making an impact during his lifetime. Peter takes the view that the money is needed now, and not after he dies. He takes responsibility for the effectiveness of the capital he commits, and it was obvious from his presentation that the organisations he supports, including So They Can, Manly Women’s Shelter, and Women’s Community Shelters, give his life purpose and meaning.

Peter with children from the Mamire Ward in Tanzania Photo: Peter with children from the Mamire Ward in Tanzania where So They Can (Peter is Chair) is building the Ile Waweza Teachers’ Training College in partnership with the Tanzanian Government.

How does this story relate to you and the broader community, and not just those who have inherited or created significant wealth? The answer is that there is nothing to stop you experiencing what our speakers described. If you are motivated to give back, then forget about your capacity and focus on what you want to achieve through your philanthropy. Do you want to leave a legacy? Do you want to involve your children? Do you have a tax liability that you’d like to offset? Do you want to build a corpus over time? If you respond positively to these questions, then consider your financial capacity.

The next step is to decide how you want to structure your giving. Whether you use a PAF or PuAF, they are equally tax-effective, and both give you input into the distribution of funds. A PAF requires a financial commitment of at least $500,000, while you can contribute to a PuAF for as little as $20,000. Like a PAF, a PuAF is a grant-making foundation established by will or by trust deed. It can receive tax-deductible donations from the public, and its earnings are tax-exempt. Depending on the size of the donation – usually a minimum of $20,000–$50,000 – a donor can set up an ‘account’ within a PuAF and make recommendations to the trustees on annual distributions. In the same way that the trustees of a PAF can decide which projects to support, donors with an account in a PuAF recommend which charities should be the recipient of their distributions. So if you set up an account with $20,000, you receive a tax deduction on the whole amount, and you are able to recommend to the trustees which charities you’d like to support (four per cent of the opening fund balance each financial year). Of course, with investment earnings your account will continue to grow, and you can commit additional funds at any time. Regardless of your capacity, a PuAF may also be the right option if you don’t want to be actively involved in the daily operation of your own foundation. Your accountant, financial planner or lawyer can advise on the options that might be right for you, or you can contact us at Philanthropy Australia.

There are many commercial and not-for-profit PuAFs in the marketplace, ranging from community foundations through to trustee companies. Whether you decide to establish a PAF or contribute to a PuAF, there are specialists who can advise on every aspect of your charitable giving, from compliance through to grant-making.

With 30 June fast approaching, now is the time to get giving.

A PAF will take approximately 12 weeks to establish, whereas an account in a PuAF can be organised in a couple of days. Just like our founders mentioned here, you can leverage your wealth and connections to create social change and join the growing movement of people and organisations who believe in the importance of giving.

Let philanthropy be your next inspiration.

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May. 30, 2013

 Tags: what's new, stories, recommended reading, general, finance, events

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