Time for a new Philanthropic Revolution?
The troubling times we now live in are well known and well documented, as are governments’ shortcomings and failures in the face of many crises. What might be less well known is that wealth is being generated worldwide at an unprecedented rate and scale.
Individuals now have to be billionaires to gain anyone’s attention, there are so many of them. Many of these billionaires have access to capital that exceeds the reserves of small nations and they individually and collectively wield significant financial and political power internationally. They hold the golden key which could unlock financial reserves for the benefit of charities globally.
We are faced now with the conundrum where governments are failing many of us in the most crucial areas, but where enormous global private wealth reserves are potentially available to make a huge humanitarian and environmental impact. Some individuals are, of course, already making a difference: the Gates Foundation is an obvious example. But more, much more, could be done by so many others to alleviate the suffering of many who receive no assistance from governments or international aid agencies.
How do we release that capital? Well, not by penal rates of taxation or other attempts at wealth redistribution; there should be no government involvement in the process.
Perhaps overdue, but certainly never too late, the time has come for a Philanthropic Revolution! One where wealthy families around the world participate actively in the funding of charities and projects that can be more responsive to individual crises in a manner and a timeframe that can make a real difference. The historical focus for many such families has understandably been on wealth preservation for future generations, often using private trusts and family foundations.
Families now need to appreciate that, such is the scale of their wealth, only a portion of that wealth need be preserved for future generations; and that they have a moral responsibility to inject much-needed capital right now into the Philanthropic sector, whether that is through the formation of their own charities, or through active grant programs supporting other charities, or through a combination of both.
A Case Study – Mental Health
Let us take the UK mental health sector as an example of where Philanthropy can make an enormous difference. The British government has admitted that the provision of mental health treatment via the National Health Service has been drastically underfunded for decades. Before COVID, it had pledged an additional GBP10 billion of funding for mental health programs. In January, it withdrew that whole program and replaced it in March’s budget with a miserly GBP10 million toward suicide prevention, which shows how much concern it has for the mental health of its people.
So, today (and for a long time to come) most mental health patients will have to wait 18 months to 2 years before they can be seen by the NHS. In the meantime, the mental health of those patients will continue to deteriorate, their relationships may break down, they may lose their livelihoods and may even be forced to live on the streets. Some of them may become so desperate that they take their own lives. Statistics show that mental illness has already become the second pandemic post-COVID.
Charities fill the massive hole in Government support
So, who is best able to help overcome this second pandemic in the UK? Not the lumbering, underfunded and understaffed NHS and certainly not the British government. Instead, it is the charitable sector that is making the difference, with the provision of free suicide helplines, counselling, food banks and warm rooms, all just a phone call or a visit away with no significant waiting times[1].
It is the charitable sector that not only sees these problems as they mount, but can react swiftly to counter them, provided (and this is a massive proviso) they can raise sufficient additional funds to do so. Too often, despite their best efforts, these charities can be overwhelmed or hampered by the lack of sufficient or consistent funding; and many smaller charities do not qualify for government funding, because their income does not meet the thresholds for financial assistance. The system hinders those smaller charities in their efforts to help.
Enter the Philanthropists – and their professionals!
This is where Philanthropy can step in and provide much-needed financing at short notice to plug the funding gap and make a real and immediate difference to those who are suffering from mental health problems throughout the UK. The international trust and wealth sector, essentially every trust practitioner and estate planner who is reading this article, is in a unique position to help. How so?
Client trusts and foundations
Well, for a start, consider all the trusts and foundations that you have under your management which contain general charitable powers (often included as an afterthought), which are rarely exercised other than for de minimis amounts which make little impact. Why not encourage your family clients to agree to an active charitable donation scheme for each of their trusts/foundations and engage each family in the scheme (mindful of any relevant tax constraints, of course) by seeking its input on the charitable focus of its structure and the selection of grantees?
Historically, settlors/founders have been keen to make donations, but the second and later generations much less so. If these entitled beneficiaries can be more engaged in the process, the likely chances of a charitable scheme succeeding will increase dramatically, as each family sees for itself the difference its trust/foundation can make.
Charitable bequests
Those of you who are estate planners are similarly well-placed to encourage your clients, when making their wills, to make larger bequests to charitable causes than they might otherwise have considered, if they have considered them at all. Family beneficiaries might take umbrage when they learn about these charitable bequests, but, taking the UK again as an example, testators can take comfort from the fact that the value of their charitable bequests is deducted from the value of their estate before Inheritance Tax is calculated, thus lowering the Inheritance Tax burden on the estate; and the effective tax rate is reduced by 4% if 10% of a testator’s estate is donated to charity[2]. So the net loss to those discontented family beneficiaries could be much less than they think. Similar or better estate tax concessions are surely available in many countries worldwide.
Economic substance for international companies
Some readers will undoubtedly have client companies which have been established in jurisdictions to take advantage of tax relief offered (whether by way of zero or lower tax rates or by way of tax treaty benefits). Economic substance is vital for these companies to be able to defend their establishment in a particular jurisdiction and the consequent tax benefits they enjoy. What better way to enhance a company’s economic substance in a jurisdiction than by formulating an impactful local charitable grant scheme?
Our professional sector
Finally, it is not just clients who should be encouraged to be more generous. The international trust sector is a particularly profitable business, most often located in low-or-zero tax jurisdictions: a particularly attractive combination for private equity buyers! Trust companies, legal practitioners[3], investment and accounting firms should all consider whether they are doing enough to support local and international charities, not just by donating client funds, but by giving away some of their own profits too! Too small a business to make a difference? Then why not collaborate with others in your industry by creating local charities that can be funded by smaller, regular charitable donations?
The importance of good planning
Whichever situation is relevant to you, it is essential that funding is structured, where possible, through a well-crafted charitable grant program[4]. Properly funded, well-designed and well-administered initiatives provide longer-term planning opportunities and stability for charities; enable imaginative, constructive and systemic, alternative provision on a national and international level; and, most importantly, empower the people at the coalface, the charity workers who are far more engaged than the average politician.
A global call to (caring) arms!
In the face of so many problems that beset the world today, the time for a worldwide Philanthropic Revolution has come! How many readers are prepared to become philanthropic revolutionaries? There can be no greater cause or no greater reward, professionally or personally.
[1] Consider,as examples, the superb work undertaken by 2wish (www.2wish.org.uk), bigmoose (https://www.bigmoosecoffeecompany.co/) Place2Be ((www.place2be.org.uk) and Michael and Yvette Mansfield’s own charity, SOS Silence of Suicide (https://sossilenceofsuicide.org/).
[2] Subject to a minimum total of GBP47,500 of charitable bequests
[3] Including those thriving in the highly lucrative trust litigation sector
[4] Specialist charity grant administrators, such as Greenwood Place (www.greenwood.place) and Rockefeller Philanthropy Advisors (www.rockpa.org), can assist in preparing such programs
