The fastest growing form of philanthropy

The fastest growing form of philanthropy in the world today

Henry Brandts-Giesen
Partner, Head of Private Wealth,
Dentons Kensington Swan
31st March 2022

The greatest inter-generational transfer of wealth in human history is currently underway, which is estimated to be around $1.1t across New Zealand over the next 20 years. It’s come as a result of many New Zealand families having enjoyed unprecedented inflation-fueled growth in their net worth, to the point where their resulting wealth sees surplus funds available for the fulfillment of philanthropic objectives.

Meanwhile, across the world we see that people are getting more strategic with their giving, and are seeking out enduring structures to manage their charitable gifts. Worldwide, we are seeing an increase in popularity of donor-advised funds (DAFs) and endowment funds as a way to achieve long-term charitable giving.

While the idea of a DAF or an endowment fund is a relatively new donor concept in NZ, interest in this form of giving is growing. Community Foundations manage a range of such funds, collectively pooling individual funds in local communities, and achieve economies of scale with their investments.

This type of invested giving has been described as ‘the fastest growing form of philanthropy in the world today’ and New Zealand’s young network of Community Foundations have seen recent rapid growth in endowment funds: 33% (from $150m to $200m) in the past financial year alone.

Community Foundations are recognized as being more cost-effective and versatile and they are certainly less administratively burdensome than creating a new charity or trust. Benefits offered by Community Foundations include:

• Taking care of compliance, administrative matters, investment and governance.

• Being an easier alternative to setting up a charitable trust, whilst still being flexible enough to meet donors personal, and sometimes specific, philanthropic aspirations.

• Having very close connections with local charities and causes. As a result, Community Foundations are in a unique position to facilitate effective giving locally.

• Achieving economies of scale and maximising returns to communities by resettling small local trust funds into one, independent local structure.

• As a not-for-profit entity itself, local Community Foundations are built around a lean, transparent and cost-recovery model so as to maximise the impact of every dollar given.

The growing appreciation Community Foundations also sees more donors able to access what we might call more “strategic philanthropy”, as they are able to make contributions (and receive the associated tax benefits) up front, and they can advise distributions from their funds into the future. The costs associated with establishing a private charity previously made this kind of long-term giving feasible only for the wealthiest of philanthropists.

Role of the professional advisor

The role of professional advisors in providing specialist philanthropic advice, and how that can influence the level of charitable donations, should not be overlooked. It is critical that individuals looking to engage in philanthropy receive sound, expert advice on how to do so effectively and strategically.

With the assistance of organisations like local Community Foundations, advisors are perfectly placed to help to ensure the charity sector works towards the efficiency necessary to ensure future sustainability.

Recent studies out of the USA, Australia and the UK show that clients would like to have a philanthropic conversation in the beginning stages of their relationship with their professional adviser and would be more likely to leave a gift to a charity in their will if the option was more ‘top of mind’, and options presented, when planning their estate.

These studies show the crucial role professional advisers play in raising philanthropic possibilities and working with their clients to ensure they can give in a meaningful and strategic manner.

Summary

In summary, I think that Community Foundations can resolve some of the big governance, compliance, and administrative issues facing grant makers and philanthropists in Aotearoa New Zealand's non-profit sector.

A well-designed Donor-Advised Fund or Special Interest Fund obviates the need for standalone legal architecture and governance of an endowment fund or bequest. This can relieve the governance, compliance and administrative burden and enable funds to grow and grants be efficiently channeled to the third party project deliverers (who themselves are likely to be standalone registered charities).

Meanwhile, grant-makers and philanthropists receive all the same tax and social capital benefits and can remain connected to the fund through their membership of the advisory board of the relevant fund.

Professional advisors have a key role to play in the philanthropic advice they give, and should not underestimate how crucial their role actually is. Professional advisors should be encouraged to have these conversations with their clients now if we, as a nation, are to make the most of the unprecedented wealth transfer we see beginning to change hands. Your clients will thank you for it.

Read the newly released White Paper, which our team has co-authored with Community Foundations of Aotearoa New Zealand here.

This article ran in the March edition of LawNews, with the Auckland District Law Society. Thank you to Dentons Kensington Swan for supporting the changemaking work of Community Foundations across Aotearoa NZ.