The term philanthropy is commonly defined as benevolent behaviour towards others in society, usually in the form of making charitable gifts. It is a term that has long existed but a topic that has, in recent years, appeared with increasing frequency during conversations with clients regarding their own personal wealth planning. Whereas, historically, topics such as protection and tax efficiency were key discussion points, we are now finding that the concept of philanthropy is also of growing importance to our clients.
Philanthropy is more than a word
Some of the world’s wealthiest people, such as the entrepreneurs Bill Gates, Mark Zuckerberg and Jeff Bezos, among many others, have committed to donating a significant proportion of their wealth to philanthropic endeavours. Closer to home, John Caudwell, founder of phone retailer Phones 4u, has pledged to donate at least 70% of his wealth to good causes during his lifetime, while the Welsh actor Michael Sheen last year declared himself to be a “not for profit” performer who will donate his future earnings to worthy causes. These news stories have certainly raised awareness of philanthropy, with a common theme invoking the old adage that “you can’t take it with you”, so why not give some or all of your accumulated wealth away, have control of where it goes and see the positive results with your own eyes?
There may be some who believe that those pursuing philanthropic aims are doing so to salve their conscience regarding the size of their estates, or are simply seeking publicity. Interestingly, some of the most significant philanthropy that takes place is on a strictly anonymous basis, and in many cases our role as advisors is to help facilitate this. John Caudwell is often quoted as saying that philanthropy gives him far more pleasure and satisfaction than making money, and his aim now is to use the wealth he generates to benefit others.
Is philanthropy only for society’s wealthiest?
Witnessing celebrities commit vast sums of money to charitable causes, in the hope of solving environmental, economic and social issues, has led to more people embracing philanthropy, even if their ambitions and commitments include significantly fewer zeros. There is a growing sentiment that we can all contribute to good causes. As wealth passes down through generations, those that hold the family wealth are becoming increasingly interested in using it for social change.
Having identified the importance of this to their clients, many major banks now have dedicated teams to assist their high net worth clients in pursuing their philanthropic ideals. Some also operate anonymous and discrete philanthropy-focused round table events for clients to share ideas and speak to like-minded people, and we often collaborate with financial advisors in these discussions.
Do you need to be a billionaire or even a millionaire to be a philanthropist? Absolutely not. Although you have to be in the position to give wealth away, you certainly do not need to hold a place on the rich list to make over some of your wealth or set up a charity - during your lifetime or through your will. More and more clients are choosing to do just that, leaving clear instructions to those that they entrust to follow their wishes after they are gone.
As trusted advisors to our clients, we have a unique insight into the planning and thought behind these wishes, and it is clear there is no exclusivity to philanthropy. In fact, there are many philanthropists who simply either do not recognise that they are a philanthropist, or would not willingly identify as one. The rise in new wealth created by cryptocurrency trading has brought another pool of philanthropists, many of whom embrace philanthropic ideals from the outset. And although it remains a niche form of donating, advocates for cryptocurrency philanthropy are anticipating a boom in donors this year, with the founders of The Giving Block claiming the donation platform is on track to process over $1 billion in crypto donations over the next 12 months.
A different type of family planning
We are often involved in discussions where parents plan their charitable commitments with their children or grandchildren, educating the next generations in the processes of who, how and - most importantly - why they are making charitable commitments. It is certainly never too early to start creating a legacy that can promote social responsibility. Raising a generation of people who wish to drive positive change may go some way to avoiding future social and economic problems. There are also additional estate planning benefits such as the reduction of your estate for inheritance tax purposes, especially if you planned to leave your estate to beneficiaries who would then undertake philanthropic activities of their own.
It could be argued that a more strategic purpose and process in identifying how philanthropic endeavours will make a difference in the longer term is what differentiates philanthropy from charity. Yet the two sit side by side, playing a crucial role in fostering a fairer and more sustainable society.
One of the greatest pleasures when working as a trusted advisor to individuals and families is being a party to discussions of this nature. The desire for philanthropic giving can build up over time or simply come out of the blue following an impactful event in a client’s personal or professional life.
In some cases, clients and their families have a very clear idea of how they wish to contribute and require some assistance merely with the logistics, whereas others wish to undertake charitable acts but are not quite clear how to go about making a change. We welcome these opportunities to be a part of the philanthropic journey with clients old and new.
Sign up to the Private Word newsletter to receive updates, exclusive event invitations and news from the Private Wealth and Tax team