Worldwide: Philanthropy Is More Than An End-Of-Life Donation: The Nature Of Donors Is Changing

Last Updated: 27 September 2018
Article by Clive Britton

We are witnessing an era in which significant wealth is being created within short periods. There is unprecedented wealth being created by young individuals, especially those benefiting from the tech boom and start-up culture. 

This wealth creation has happened as governments cut back on spending on social causes, especially since the global financial crisis a decade ago. As we see more high net worth (HNWI) young people with a social conscience entering philanthropy, we see donors who want a high level of personal engagement with the causes they support. 

This will be very different to the experience of HNWIs in their later years wanting to contribute to philanthropic causes after their death, though the reasons for the charitable giving remain the same: doing good in the world and sharing the wealth with those who need it.

Getting to the details of philanthropy

In general terms philanthropy is the charitable giving to causes in a substantial and generous way - more than ad hoc donations or smaller bequeathals. The ultimate objective is that the charitable donation has a meaningful impact on human welfare, the environment or such cause to improve the world around us. 

Each philanthropist is unique, and will have their own requirements and ambitions for the philanthropy. Likewise, the options open to the HNWI very much depend on the specific circumstances. Increasingly, philanthropists are mindful of ensuring their philanthropy has a meaningful impact, and so we encourage the setting of milestones and objectives at the outset of a philanthropic project in a planning phase which would include an in-depth assessment of the circumstances, needs and ambitions of those involved.

The initial checks can be especially important when the HNWI is a young philanthropist, as they may lack the breadth of experience to best establish a charitable venture for success from the start. It's also important that philanthropists seek expert help to measure the impact of their philanthropy against the milestones on an ongoing basis so that they may take remedial action as required. 

How a project comes into being

I am currently setting up a philanthropic endeavour for a HNWI German tax resident who wants to donate his entire estate to a worthy cause; he has chosen a conservation cause supporting the wildlife, environment and poor communities in Africa. One thing he is clear on, though, is that this philanthropy should form the basis of further fundraising for this project in Europe, which means the solution we propose must be both attractive to Europeans as well as be accepted as a legitimate charity by European tax authorities.

The legitimate charity aspect (by way of registration and regulation) is important, as this will make the donation tax-efficient for the current and future possible donors. It will also ensure the most money possible will end up with the project and be subject to formal monitoring by an external regulator.

In this particular case, we considered establishing a German charitable foundation or a Swiss charitable foundation, but believe future donors will prefer the Swiss option as Switzerland is a more attractive jurisdiction in which to establish a charitable foundation.

Given the tax implications and the philanthropist's wish for the foundation to survive long after he passes, we sought advice from both German and Swiss tax legal counsel to understand how best to set up and bequeath the estate to the foundation. We've now engaged with an African organisation already involved in the conservation project, and are working with them to agree on a detailed list of charitable objectives to ensure the money hits where it is needed most.

Throughout this process, the donor has been fully engaged with the process as a way to make sure his needs and wishes are fulfilled. The end result is that upon his death, a registered charitable foundation regulated in Switzerland will be established, subject to annual audited accounts and open to further donors. It has very clear and specific, measurable objectives, too.

How does TMF Group come into play?

There are legal administrative necessities in these projects, from setting up the charitable trust to ensuring the tax efficiencies including the acceptance by tax authorities of the charitable - and therefore not for profit - status of the philanthropic vehicle; again, this is to maximise the funding of the target social or environmental causes. Our private wealth teams are very experienced with philanthropy, and have the expertise and connections necessary to take a philanthropic project from idea to world-changing. 

For example, our teams can set up the board of trustees, help install directors, perform all of the requisite accounting and reporting for the regulators as well as help to make sure staff involved in the charitable foundation have the relevant expertise. As we are able to provide corporate trustees, this ensures continuity of expertise; our trustees are qualified professionals subject to rigorous scrutiny and controls. We have a lot of experience establishing philanthropic structures, especially across Europe and Asia, and can call upon colleagues in more than 80 countries to support with the administration and compliance.

And remember, this is more than elderly HNWIs wanting to leave a legacy. As more and more young HNWIs consider how to handle their wealth, I believe we'll see much more philanthropy from the living, and hands-on projects at that. These philanthropists, though, are more likely to require the breadth and depth of expertise offered by TMF Group in addition to being able to call upon our significant international network. We are therefore well placed to support young philanthropists who want to become actively engaged in their project throughout their lives and as they build their own expertise in this field. 

Philanthropic endeavours are a tax-efficient way to handle your wealth while doing public good. Get in touch with TMF Group's family business wealth team to discuss how your philanthropic objectives can be met.

Learn how our services help our clients to maintain focus on what matters most to them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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