Philanthropy’s Family Ties

Philanthropy's Family Ties


Most successful multi-generational family business make philanthropy a priority. Below in my latest published article for the Bauer Media Group, I outline some of strategies for combining transition planning and charity to forge a long lasting legacy. David Harland – Family Business Advisor

Owners of family businesses are among Australia’s most philanthropic individuals and include such well known names as Pratt, Lowy and Myer. They are appreciative of their good fortune and want to give back to the communities that have nurtured their companies and promoted their success. For many business families, philanthropy is part of the family legacy and is used to pass on family values from one generation to the next. A 2010 survey of Australian family businesses showed that more than 35 percent of respondents participate in philanthropic activities with their families as a way to build stronger family ties.

Increasingly, family business leaders are also looking at philanthropy as part of their succession strategy. As founders approach retirement, they begin to think of their personal and family legacy beyond the business and may look for strategic ways to share their wealth.

Philanthopy-family-BusinessThere are definite financial benefits to including charitable gifts as part of a succession plan: the exiting generation will leave a charitable legacy, deductions for charitable giving will reduce tax burdens, and net after-tax cash flow may be increased.

If charity work is important to you or your family, it may be time to consider philanthropy in your business succession or estate planning. Although many Australians become involved in charitable giving on an ad-hoc basis, charities love planned giving because it gives them more consistent funding streams and often increases the size of donations. In fact, a 2005 study called  “Giving Australia” found that planned gifts were on average four times greater than spontaneous gifts.a family discussion about succession, but don’t know how to begin, philanthropy, and discussions about family legacy can be a good place to start.Many professional disciplines intersect when creating a philanthropic structure within a business succession plan, including legal, tax, accounting, and financial planning, and discussing the finer points are beyond the scope of a column. However, I wanted to briefly discuss two common ways that business families approach philanthropy. family discussion about succession, but don’t know how to begin, philanthropy, and discussions about family legacy can be a good place to start.

The simplest and most popular approach is to create an annual gifting budget with your business or family. Through an annual gifting approach, business leaders and their families are able to make general charitable contributions out of family assets. As long as these gifts are made to deductible gift recipients (DGRs

Families with greater assets and a desire to create a lasting legacy can create a Private Ancillary Fund (PAF). PAFs are charitable funds established by a private entity to which individuals, families, and businesses can make tax-deductible donations. When significant cash assets will be generated during succession (such as after the sale of a business), a PAF can be funded by an initial irrevocable gift, to which additional capital can be added over time, as resources allow. These funds are required to disburse a certain percentage of their assets each year and are controlled by trustees. One of the primary advantages of a PAF is that donors are able to dictate the recipients of family funds while delegating the day-to-day management to professional fund managers.), families can realize tax deductions and reduce their owed income tax each year.

Philanthropy is also good for family business longevity. According to research conducted in 2004, family philanthropy is one of the factors associated with successful multi-generational businesses. Collective philanthropy creates opportunities to build familial connections and helps members preserve core family values. As an advisor, I see that business families that are able to create a lasting identity for their members are more successful at navigating the obstacles of succession and other important business transitions.

Succession planning and philanthropy are important issues for family business leaders to consider because they both deal with the idea of establishing a personal legacy. Taking care of loved ones and creating a future for the next generation are typically of great importance to a successful business leader. Similarly, incorporating philanthropy in your succession is a way to create a lasting legacy for yourself and your family. For example: Alfred Nobel isn’t remembered so much as the inventor of dynamite as the creator of the Nobel Prize, which still funds important scientific and social progress a century later. While we may not be able to create a legacy on par with his, we are still able to make very real, important contributions to society.

For more information on how to start forging your family legacy contact FINH on 07 3229 7333

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