How to integrate 'giving'
Philanthropy gives advisers unique opportunities to not only connect with their clients, but to present them with an appropriate giving structure.
The end of financial year has historically been a time when charities solicit support from individuals due to the generous tax deductions that can be gained.
However, for most people, the motivation to support a charity often exceeds the related tax benefit.
This gives advisers a unique opportunity to not only connect with their clients to uncover their passions, interests and values, but to present them with an appropriate giving structure.
Advisers are also well placed to assist clients who have the capacity to make significant donations, to be more effective in their philanthropy through a structured giving program.
A structured giving program enables donors to establish a foundation, a donor-advised account or a charitable trust in order to generate the same tax benefits as if they made a direct gift to a charity.
Through the foundation structure, the donor can ‘preserve’ initial and subsequent donations by staggering distributions to the end beneficiary (in line with minimum distribution requirements of their structure). Also, distributions from foundations or donor-advised accounts can only be made to a charity that is endorsed as Item 1 Deductible Gift Recipient charity.
Due to preservation provisions, advisers can add a lot of value to their practice by alerting clients to their philanthropy options, as well as playing an important role in the ongoing management of their clients’ foundations or donor-advised accounts.
Philanthropy as part of a client’s overall wealth management strategy
Philanthropy naturally aligns itself with effective tax planning. However, it is also often raised by advisers and their clients considering succession planning. This is because charitable foundations are not subject to the ‘law of perpetuities’ and can be the ideal vehicle to instil values in future generations or continue a legacy, where there are no direct beneficiaries from an estate.
A successful way of alerting clients to their legacy options is to incorporate appropriate questions about philanthropy into your client’s initial fact find.
What philanthropic structure is best for your client?
There are many options to explore when establishing a philanthropic structure for a client. The motivation behind an individual’s decision to structure their giving may not be immediately apparent, but it is important the adviser provides clients with options.
When providing advice on structured giving, advisers should consider the following questions:
- - Does the client understand their donation is irrevocable?
- - Does the client wish to receive a tax deduction for their donation? If so, do they require it in the current financial year?
- - What amount does the client wish to contribute to commence their structured giving program?
- - What level of control or involvement does the client require in running or managing the charitable trust?
- - Does the client understand that, by giving through an ancillary fund, they can only support charities endorsed as an Item 1 Deductible Gift Recipient?
The answers to these questions will guide the most suitable philanthropic structure for your client.
Typically, these include a private ancillary fund, a donor-adviser account or a testamentary charitable trust.
Ben Clark is the head of philanthropy for Australian Executor Trustees
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