Structuring Your Giving: 5 Things You Need To Know
There are many different options available to the philanthropist in terms of the vehicle or structure used for giving and the choice made will depend on a number of considerations. However, the key thing is to get proper tax and legal advice so that the tax obligations are clear and there is a shared understanding of the limits placed on the philanthropist by the various legal structures. Some banks and other professionals also provide good, bespoke advice on structuring philanthropic giving.
There are a few different approaches to structuring giving, some of which are outlined below.
Firstly, at the very basic level, the philanthropist could choose to keep things really simple (but possibly not very tax efficient) and make donations in her own name to various causes that align with her values. This provides her with complete flexibility, quick response times and little administrative or legal obligations. Alternatively, she can decide to do the bulk of her giving in her will and leave bequests to various organisations. It is quite likely that many philanthropists start out this way and then, when the value and the complexity of giving increases, start to look for alternatives.
Secondly, a very simple solution is to find another grant-making organisation (such as a closely related family trust or an independent foundation or an international grant maker operating in the same area) that is willing to also receive your funds. It would obviously need to be closely aligned with the philanthropists’ values and an organisation in which she can place high levels of trust. The advantage is that she “piggy backs” on their work. Some grant-making organisations are also set up as grantreceivers and will provide the donor with a tax rebate. Some foundations may not have consciously considered receiving donations but may well be very happy to do so and the philanthropist may find this is also tax efficient. Certainly, from a management perspective it is very efficient to “piggy back” on a Foundation that shares similar values and which the philanthropist believes is doing good and important work. If the philanthropist wants to be more involved with the ultimate beneficiaries she can negotiate reporting and site visit arrangements with the foundation. If she wants greater oversight, she may be able to be appointed as a board or trustee member.
Thirdly, if the philanthropists’ intention is to leave a legacy that lasts beyond her lifetime and/or provide a vehicle for giving that her children and grandchildren can be involved in, then she may wish to consider a testamentary trust or establish a charitable trust during her lifetime. Establishing a trust formalizes giving as it requires the philanthropist to think about the purpose of the trust, approve a trust deed, appoint trustees and comply with the various regulatory reporting and other requirements. Different countries will have different laws applicable to charitable trusts and there is a need to take legal advice.
Fourthly, another way to formalize giving is through the creation of a non-profit company (NPC). Again, different countries may have alternative names and scope for non-profit companies but in South Africa non-profit companies came into existence in 2011 when the South African Companies Act 2008 came into force. The Act prescribes the rights and limitations of a non-profit company but generally speaking, there is considered to be slightly more onerous governance requirements for an NPC than a trust. In South Africa, if it is registered as a Public Benefit Organisation (PBO) it can receive donations.
Fifthly, a founding donor may also wish to consider whether donating through a private, family business is more appropriate – this could be considered as a “corporate philanthropy” solution. If the donor and/or the donor’s family have significant control over the company, then it may be quite easy for her to align her personal values and the values of her company and run her philanthropy out of her business. One way to do this is to establish a stand-alone trust or non-profit company that uses the business’s brand and other financial and non-financial resources. For example, the family-owned company could establish the Company X Foundation, which could be based at the company and could provide value to the company brand. It is not necessary to establish an independent trust: many companies are involved in charitable giving of some sort but simply run it out of their public relations, marketing or human resources department.
This article is an excerpt from the first edition of the Toolkit for African Philanthropists published by the African Philanthropy Forum. To learn more about this toolkit, please visit here africanpf.org/publication