The difference between philanthropy and charity

Charity and philanthropy both have the same goal: to help those in need and to make the world a better place.  Charitable giving seeks to do this via direct relief and support, generally focused on meeting immediate needs like shelter, physical safety, food and medical assistance (A good example of this is the spike in giving we see when there are natural disasters such as floods and fires).

Philanthropy, on the other hand, tends to be more long-term and strategic in nature. Naturally, such an approach can take the philanthropist beyond funding programs and into areas such as research, collaboration and advocacy.

“Charity is essentially focused on providing assistance in the immediacy of the problem, whereas philanthropy tries to understand and address the underlying causes of the problem,” explains JBWere Head of Family Advisory and Philanthropic Services Shamal Dass. “So the difference between philanthropy and charitable giving is not so much the size of the cheque but the underlying approach in how you seek to contribute.”

Dass goes on to argue, though, that they both matter and should work hand in hand. “Take homelessness for instance; we need charitable giving to ensure the homeless are fed and sheltered. We also need philanthropy seeking to understand and address the systemic issues (e.g., housing, taxation, zoning, family violence) that cause homelessness.”

Philanthropy – a commitment of time, talent and treasure

The term philanthropy was coined in the 5th century BCE by Greek playwright Aeschylus and means ‘love of humanity’. “In that vein, philanthropy, in the modern day, means giving in all its forms – your time, your talent and your treasure – for the benefit of others,” Dass says.

Hence, philanthropy should bring together the head and the heart, necessarily requiring forethought, focus and understanding. “You could spend a hundred million dollars and not change a thing – in fact, you could make things worse,” Dass says. “So you need to be targeted but also mindful in the way you engage and give.”

Research and analysis are important elements here, as is access to the organisations with expertise in the area you want to focus on. “A philanthropist must engage with partners to learn what has been tried, what works, what doesn’t and what is required from them,” Dass says. “That’s what should direct your strategy.”

Philanthropy and family wealth

Philanthropy also represents an opportunity to manage your wealth, whether through channelling additional money into tax-effective investment vehicles or by ensuring it’s passed down through the generations in accordance with your family’s shared vision.

When it comes to minimising your tax, establishing a charitable trust can make a lot of sense. A private ancillary fund (PAF) endorsed as a Deductible Gift Recipient, for example, offers an opportunity to receive immediate tax deductions on any money you donate. It also gives you more control over how the funds in the PAF are invested and your long-term giving strategy.

PAFs suit those with significant capital to allocate to their philanthropic pursuits (the average size being in excess of $3 million). On the other hand, a public ancillary fund (PuAF) account is preferable for those who either aren’t interested in the day-to-day investment management or may be commencing with less capital (PuAF accounts can be established with between $10,000 and $20,000).

“It all begins with what you are trying to achieve and over what timeframe – this will determine if you need a structure in place and, if so, which one is best suited given your needs and circumstances,” Dass says. “You want to ensure it will work now, but can also grow and evolve with you and your family.”

Philanthropy often plays a critical role in family wealth management. Creating a shared vision of the purpose of the family’s wealth and engaging family members in its management, can facilitate a more successful transition. As Dass points out: “The financial management industry spends a lot of time talking about intergenerational wealth transfers but, in reality, it’s a transition of control and power. And, in our experience, this transition goes more smoothly when it is about shared values and ambitions – all generations can learn from each other.”

Trust matters 

Along with setting up a structure that is ineffective, a common mistake can be trying to be too prescriptive in your philanthropic instructions. “You need to trust that your charitable partners know how to deploy your funds to create lasting change,” Dass says. “We are all shaped by, but also limited by, our knowledge and our experiences. What’s more, things change. As a result, flexibility and agility are key in philanthropy – and more important than ever in an environment where many charities are struggling to make ends meet.”

You also need to give your family the chance to evolve their approach as the needs of society and the passions of each generation change, Dass says. “Ultimately, you need to trust that your family is equipped to make the right decisions based on the circumstances they face.”

Any taxation related information included within this article is of a general nature only. JBWere is not a registered tax agent and it is recommended that you seek advice from a registered tax agent to determine any tax implications that may arise.