A philanthropic family must decide where and how they want to have impact. Then they must take a strategic approach to make it happen.
Presented by Mutal Trust
Wealthy families that take a strategic approach to their charitable giving will have greater impact and do a better job of handing down financial skills and family values, says Alice Walter, head of philanthropy at Mutual Trust.
When families come to Mutual Trust they are usually already donating to charity. Normally it will be in an unstructured, ad hoc manner. A major event such as a business sale is often the prompt to seek help with investments, succession planning and strategic philanthropy.
Unique area of governance
Established more than a century ago, Mutual Trust provides family office services for several hundred of Australia’s wealthiest families. It offers technical expertise on how to compliantly establish and manage a charitable foundation or a fund, and its investments and distributions. More importantly, says Walter, it offers help with governance for purpose.
This is a unique area of governance, because the family is operating a private entity with public capital.
The three most common structures for private philanthropy in Australia are a private ancillary fund, a public ancillary fund or a charitable trust. When the family donates to an ancillary fund, they receive a tax deduction and no longer beneficially own the funds they have donated. Yet the family manages the fund, the investment and the distributions.
“Where it really plays to the rest of the work Mutual Trust does is that it’s a family board that is doing this, and so all of the family dynamics and all of the succession planning we do comes into it,” says Walter. “It’s a fairly niche space.”
In the past, charitable structures were mostly established as part of family tax planning to receive the tax deduction. This could lead to the creation of what Walter calls “zombie foundations”, where once a year, the founder was rung and asked where they wanted to donate the funds. It became just another item on the list of the chores.
Strategy and purpose
This highlights the importance of taking a strategic approach to philanthropy from the outset, says Walter. “If you start with a strategy, you not only realise, on the impact side, things you really would like to achieve in the world, but you also find a place for it as another one of your family’s enterprises in the family group.”
The family needs to decide where and how they want to have impact. Then they must form and implement a strategy to make it happen, and determine how they measure impact and evaluate what success looks like.
Walter says Mutual Trust puts a lot of effort into the beginning of the process to help families work together on their purpose, which should be a very clear statement that is authentic and true to the family and can last over generations. It should finish with a vision.
For example
A purpose statement might, for instance, be that the family wants to advance learning in order for there to be more equitable communities in Australia.
The choice of the word “learning”, rather than “education”, is deliberate as it provides more flexibility. Learning could refer to traditional educational funding opportunities, such as scholarships for example. Or it might be delivered by grassroots organisations that help elderly people learn how to use digital technology by getting disadvantaged, unemployed young people to work with them.
Other benefits
Aside from having an impact, there are other benefits for the family from taking a strategic approach.
A charitable family foundation is a place to transfer family values, where for instance, a grandchild and grandparent might work together to decide how the funds are distributed. Likewise, there’s the opportunity to gain financial literacy and governance experience for younger members of the family.
Investment governance
Another factor of managing a family foundation is investment governance for charitable purpose. The elements are much the same as investment governance for any purpose — forming a strategy, identifying risk tolerances and appropriate asset classes.
However, the way that this is done relates to the family’s purpose. For instance, a family that wants to have a more immediate impact will manage their family foundation to ensure that it has high liquidity, so the funds can be easily accessed to distribute as grants.
On the other hand, if a family wants to have ongoing impact for decades or even generations, then they will need to manage the investments for perpetual growth and return, says Walter.
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