Philanthropy is the act of providing your time, talent or finances to help other people. High impact philanthropy is a type of philanthropy where the focus is on achieving a specific social goal and making sure there is a robust focus on measuring the outcomes of the giving. A thoughtful financial plan can provide high-net-worth individuals with the opportunity to advance causes they value.
What Does it Mean to Be a Philanthropist?
So what are philanthropists and what does it mean to be philanthropic? Philanthropists are people that believe advancing the public good is a worthy and important cause. A philanthropist doesn’t necessarily have to be a high-net-worth individual, but those with more funds can potentially have a larger impact. There are a wide variety of activities that individual philanthropists can get involved in. Some philanthropists like a high level of personal involvement, while others are happy to stay in the background. Naturally, a philanthropist’s chosen causes may be things they feel a strong personal affinity for or that are important to the person’s family. Organising philanthropic activities can be complex so it is important to get personalised advice from a wealth manager with the relevant expertise.
Strategies for Maximising the Impact of your Philanthropy
It is important to think carefully about the recipients of your philanthropy. There is no shortage of charities and good causes in the world, but they are not all created equal. Connecting with people that already donate and asking their view of a recipient organisation would be a good idea. The more of an active interest you take in your philanthropy, the more certain you can be that your expected goals will be achieved. A good adviser can do some due diligence for you and make sure the charities you help are legitimate. If you would like to gather some information on actual social impact before committing to an organisation, ask your wealth adviser to look into an entity and find some analysis on its activities. Some early questioning of an organisation can ensure that your philanthropic activity aligns with your personal values and goals.
Tax Benefits of Charitable Giving
Charitable giving can help reduce a donor’s tax liabilities, particularly when it comes to income tax and capital gains tax. Two popular vehicles for tax-efficient charitable giving in the United Kingdom are Donor Advised Funds (DAFs) and Charitable Foundations. These vehicles can help philanthropically-minded high-net-worth individuals with their wider financial planning.
What is a Foundation?
The establishment of a foundation or trust can formalise charitable giving, providing a level of organisation that is likely to improve its impact. Some of the most widely known trusts and foundations have stemmed from the charitable and philanthropic aims of an individual or a family. A foundation is a non-governmental organisation run on a non-profit basis, with assets provided by donors or from the wealth accrued by an individual or family. Those assets are managed by foundation officials directed by a manifesto, with assets used for the benefit of the outlined purposes. The impact of a foundation can be truly life-changing for beneficiaries and can lead to lasting positive change. For the individual or family, a foundation can provide a true sense of accomplishment and satisfaction. The tax benefits of foundations are also considerable and should be discussed with a wealth manager.
What is a DAF?
DAFs provide charitably minded high-net-worth individuals with a useful middle ground. The funds are established under an umbrella charity that administers them on behalf of the donor. The main advantages of this type of fund are they are tax-efficient, flexible and less costly than running a foundation. They have been described as a ‘one-stop shop’ for all someone’s giving needs. There are a wide variety of ways you can fund a DAF. The assets that can be contributed to a fund include cash, shares, non-cash assets and third-party entities. Gifts to the DAF are irrevocable, but the giver will maintain control over how the funds are invested or distributed. Assets within the DAF can be invested responsibly and grow over time, creating a positive impact before they are handed over to worthy causes. An experienced adviser can walk you through the many tax benefits of DAFs.
Inspiring the Next Generation to Give
Philanthropy is often something that continues down the generations, creating a strong legacy for the person that initiates the process. A philanthropist can request that their charitable activities continue after they pass away, possibly managed by family members or a professional management team. It is often the case that young members of a family will continue existing philanthropic work and even expand the activities. Involving younger family members in philanthropy early increases the chances they will take ownership of these activities and continue them.
There is a strong link between philanthropic activities and good investment management. Charities will often welcome donations of investment assets along with cash, so your investment portfolio can become an integral part of your charitable giving. A successful portfolio can also mean you have more funds to allocate to charitable causes.
Making an Enduring Impact
Philanthropy can be a hugely impactful endeavour. Anyone that engages in philanthropy can tailor their efforts so that they have a positive effect on the social causes they value. One of the most rewarding things about building wealth is gaining the ability to use those funds to help other people. Philanthropy is something that can stretch well beyond someone’s own lifetime and future generations can become inspired to continue this legacy.
At London & Capital, we pride ourselves on helping our clients to begin a philanthropic journey that will endure. If you would like to discuss philanthropy with one of our advisers, contact us today.
