Today, anyone can be a philanthropist. You do not need to be an Ultra High Net Worth individual or to set up a foundation for the purpose. However, there are many instances where properly structuring your philanthropy can go a long way to maximising your endeavours.
As philanthropy grows in this country, for those choosing not to formalise their philanthropy, there are so many options and opportunities to get involved.
Giving directly to an organisation or individual is the obvious one, but these days you can give through loyalty cards while shopping at the supermarket, invest in social enterprise funds where the return is not only financial, buy shares in social projects, give online or even buy unit trusts where a portion of the fee is used to support a particular cause.
As society places more and more pressure on the businesses they support to operate with an increased social conscience, we are bound to see more innovative and interesting ways through which we can do our bit. Just by carrying on our day-to-day commercial activities, we will no doubt be exposed to more and more opportunities to make a difference – even if it means just choosing a particular product over another.
There are many instances though, where the setting up of a foundation makes very good sense, but there remains a common misconception that one needs millions to do so. Whilst you do need to endow the foundation with a level of funds that makes it financially viable, the amount required is not as large as many think. Often all that is needed is enough funding to create an income stream for distribution that you feel would be sufficient to fulfil or help fulfil your philanthropic objectives, once annual accounting and any other costs are covered.
Once you have determined that the setting up of a foundation would indeed make financial sense, the next decision would be whether it should be established during your lifetime or in terms of your Will. This comes down to a very personal decision as to whether you would like to experience the impact of your giving or whether you would rather leave your philanthropic pursuits until after your death. The latter could be your preferred route for a number of reasons, including the need for financial certainty during your lifetime, the desire to leave a legacy or otherwise.
Whether you set up a foundation during your lifetime or in terms of your Will, both options provide you with an opportunity to consciously evaluate and decide on what is important to you and what you would like to achieve through your philanthropy and to provide for this through the founding documents.
Through the selection and appointment of trustees, you also have the opportunity to put those people in place who will help to achieve your philanthropic objectives whilst you may no longer be around to ensure this. You also have the opportunity to specify whether the foundation should be ‘spent down’ over a certain period of time or whether it should continue indefinitely. Either way, flexibility is key as you would want the decisions on distributions to be made in light of any changing needs or circumstances. If education is no longer in such crisis in twenty years’ time, should the trustees be able to focus on something else? Also, if the foundation only has five years left within which to operate, could the rushed spending of possibly significant funds still left in the foundation be done responsibly?
If structured properly, the setting up of a foundation – whether during your lifetime or in terms of your Will – can provide both you and the foundation with certain tax advantages. (Those involved in direct giving can also avail themselves of these advantages, however, these can often be maximised if structured through a foundation.)
Another advantage of setting up a foundation is the ability to keep support at a constant level. In terms of the usual model of funding a foundation, the capital would be invested and the income earned, or a proportion of it, distributed at regular intervals. If in any year, the income is not sufficient to meet the amounts required for distribution, the trustees, if given the flexibility to do so, can dip into the capital – in this way managing to maintain levels of support to beneficiaries in the difficult times when this is often crucial. If giving directly in your personal capacity, the ability to keep your giving constant in financially challenging years is unlikely to be possible.
Whilst not for everyone, making formal provision for your philanthropy through a foundation should, if anything, ensure that you apply your mind more consciously to your giving. We need to move away from the view that this route is an option reserved for the wealthy. Even if it is through a group of friends or family pooling their resources, a foundation is a great way to commit to longerterm giving.
Anna Vayanos heads up the Philanthropy Office at BoE Private Clients. She is an admitted attorney and also a solicitor for England and Wales specialising in charity law. After practising in both London and Cape Town, Anna left law in order to take up a role through which she seeks to facilitate the growth of philanthropy in South Africa, something she is very passionate about.
Source details: Nedbank Private Wealth Giving Report (2010)
