A Blueprint to Grow Structured Giving

Problem

The number of wealthy Australians is increasing, as is their proportion of total wealth. The pandemic has turbocharged wealth at the top end, with the combined wealth of Australia’s billionaires over 50 per cent higher than it was in December 2019.

Despite this, giving levels among the wealthiest are decreasing.

The proportion of Australians earning between $500,000 to $1 million who donate is dropping at a greater rate than any other income bracket. The percentage of those earning over $1 million who make tax deductible donations is now 54.5 per cent in Australia. This compares to 90 per cent in the United States.

However, Australia is expecting an unprecedented $2.6 trillion intergenerational wealth transfer from 2021 to 2040. Capturing this wealth will be important in achieving our goal of doubling structured giving by 2030.

To make the most of this opportunity, we need to enhance the building blocks of philanthropy in Australia.

Priorities

1. Introduce new structured giving vehicles and tax incentives to encourage philanthropic giving in Australia and remove unnecessary barriers.
2. Increase awareness and education about philanthropy – including the benefits of giving and structured giving vehicles.
3. Continue to build the evidence base and demonstrate the case for philanthropy, understanding its impact and how it can grow.

Initiative 1: Remove barriers to donate excess superannuation

Many Australians die with the majority of the wealth they had when they retired. Data from a large superannuation fund found that deceased members left behind around 90 per cent of the superannuation they had at retirement.

However, there are currently disincentives to donate excess superannuation to charity.

Under existing laws, any funds which are distributed to a non-dependent are generally taxed at up to 15 per cent plus the 2 per cent Medicare Levy. In addition, an individual cannot directly donate some of their excess superannuation to a charity. They must donate it through their estate, which is more complicated.

Superannuation balances at death are forecast to increase in the decades ahead. This initiative aims to make it easier for people to give by:

• removing the current tax penalty for bequests to charities from superannuation
• enabling individuals to directly donate excess superannuation to charities.

Initiative 2: Reform the deductible gift recipient (DGR) framework

The deductible gift recipient (DGR) framework within tax law means that not all charities are eligible for DGR status.

Australia has just under 58,000 charities. Based on 2019 data, nearly half of Australia’s charities aren’t eligible for DGR status, meaning they can’t accept tax deductible donations.

Seeking ‘specific listing’ in the tax laws is a long and complicated process with only a remote possibility of success. Charities with multiple purposes and activities often need to be endorsed under multiple DGR categories, creating a significant burden.

In 2013 it was recommended that DGR status should be extended to all registered charities. Charities whose purposes are for the advancement of religion or education through childcare or primary and secondary education, would only be able to apply DGR funds towards activities falling within other charitable purposes.

Comprehensive reform remains the priority. If, however, a staged approach is preferred, then a first step should be to create a DGR category for community foundations as well as other philanthropic intermediaries.

This initiative would broaden and simplify the process, helping more charities to gain access to philanthropy and better position themselves to support future community needs.

Initiative 3: Introduce a living legacy trust structure

Giving by bequest is low with only 7.4 per cent of people leaving a direct charitable bequest through their will (2016). Establishing a new tax incentive could help charities benefit from the significant intergenerational wealth transfer that’s expected over the next 2 decades.

A living legacy trust would allow donors to place an asset in a trust for the benefit of a charity upon their passing, which they can still receive an income stream from when alive.

To enable charities to benefit from such trusts sooner, there is potential for an intermediary to be established to lend funds against the security of trusts established to benefit the charity.

Preliminary analysis of this structure indicates that the model could be budget neutral.

Initiative 4: Champion stories of diverse philanthropic giving

Storytelling is a powerful tool. Research suggests that openly discussing donations and celebrating giving helps to increase philanthropic giving.

Sharing, promoting and celebrating stories of philanthropy from diverse professions, communities and backgrounds helps to:

• demonstrate the value of philanthropy
• foster a culture of giving
• highlight the personal benefits of giving, including improved wellbeing, physical health and happiness.

Initiative 5: Develop a research agenda to extend the evidence base

There is a large and developed body of knowledge about philanthropy, built up over time by a committed group of researchers. Enhancing this evidence base is critical to implementing the Blueprint and doubling structured giving by 2030.

There are also priorities and initiatives that would benefit from further research – for example, trialing new ways to apply behavioural insights to structured giving.

By collaborating across the sector to prioritise research, we build and demonstrate the case for philanthropy and how it can grow.

Problem

The priorities and initiatives outlined in this section are designed to target the high potential opportunities to grow structured giving around specific groups of current or potential givers. The priorities below build on the efforts to enhance the building blocks for target groups.

Priorities

1. Capture a share of the intergenerational wealth transfer for philanthropy.
2. Engage more of Australia’s well-resourced and High Net Worth (HNW) individuals in philanthropy.
3. Grow giving from Ultra High Net Worth (UHNW) individuals.
4. Build a pipeline of next generation and new givers across wealth levels.
5. Increase community and place-based giving.

Initiative 1: Support professional advisers to engage with their clients

Studies show that financial advisers have a big impact on how their clients invest their money. While 73 percent of HNW individuals use financial advisers, only 63 per cent of advisers discuss philanthropy with their clients. Focusing on this group is a huge opportunity to grow structured giving.

A study with lawyers in the United Kingdom demonstrated that behavioural insights thinking increased legacy giving among people writing their first will by 40 per cent.

Research also demonstrates that providing training and access to information and materials could help these figures to increase.

A key initiative is to work with professional advisers to have the incentives, tools and knowledge to engage with their clients about philanthropy, to grow structured giving, including through bequests.

Initiative 2: Introduce bi-annual report on well-resourced and UHNW giving

Little is known about the giving behaviour and rising number of well-resourced and UHNW individuals in Australia.

To improve the culture of giving in Australia, it’s important to normalise conversations and increase openness around giving.

Conducting a bi-annual survey would serve to:

• address this significant gap in knowledge
• leverage data from wealth advisery firms
• build greater transparency of the extent of giving of UHNW individuals.

Sharing anonymous data and reporting actual giving levels, attitudes to giving, and stories of giving, may stimulate additional giving.

Initiative 3: Facilitate and support UHNW philanthropists to engage their peers in giving

Research shows that donors are often motivated by gaining a reputation amongst their peers.

What motivates giving amongst the wealthy is also very personal. Public appeals are unlikely to compel
this cohort to give in the short term.

By providing a platform for philanthropists to share their personal giving stories and the benefits of giving with their peers, we can increase giving amongst Australia’s wealthy. Philanthropy Australia intends to support UHNWs with this direct engagement.

Initiative 4: Cut red tape to enable more community and place-based philanthropy

Community foundations have an opportunity to grow giving and create impact where it’s needed most, but current red tape inhibits these foundations from making the fullest possible contribution.

• Community foundations generally operate through a public ancillary fund (PuAF) structure that is precluded from receiving private ancillary fund (PAF) grants.
• Community foundations can only make distributions to Item 1 deductible gift recipients (DGR), which is problematic particularly in regional areas where few have such status.
• A new DGR category should be created within Division 30 of the Income Tax Assessment Act 1997, which could extend to other philanthropic intermediaries.
• Some community foundations currently use a Public Benevolent Institution (PBI) structure for place-based initiatives, but this is still restricting.

Removing this red tape will catalyse the growth of community foundations.

Initiative 5: Facilitate community and place-based philanthropy

Building on the previous initiative, there is an opportunity to foster the growth of place-based giving with targeted initiatives. These initiatives may include:

• building awareness
• supporting early-stage development and government matched fundraising
• accessing local assets.

Community foundations don’t need to be large to be effective, but do need a revenue source, corpus or endowment of invested capital that they can access to raise funds, manage investments and make or administer grants.

Ideally, foundations can reach a scale where they can fund at least one staff member rather than rely on volunteers.

There is an active group of organisations in the community foundations sector which would be key partners to progress this initiative.