Philanthropy: making one’s money matter

Having built and nurtured their wealth over a lifetime, many people want that money to make a difference, helping change the world for the better. Done well, philanthropy can be a path to real fulfilment and a powerful tool for change. Audrey Lesperoy, a Wealth Planner Team Leader at BIL, says Luxembourg is a particularly fruitful environment for philanthropy thanks to tax incentives and government matching funding programmes.

There are three main drivers that propel people to incorporate philanthropy into their wealth planning, according to Audrey Lesperoy, the Wealth Planner Team Leader at BIL and former philanthropy adviser to a leading public utility foundation in Luxembourg. The first is a desire to give back to society, something that is often deeply personal. People who have acquired substantial wealth during their lifetime want to give back to organisations and institutions that have helped them, while those who have been touched by illness often want to contribute to the scientific and medical advances.

The second key factor is the transmission of family values – philanthropic projects can become a means to involve a family in a shared goal. Says Ms Lesperoy: “A person may establish a foundation with the intention of including their children and grandchildren, helping educate the next generation about their values. We see the new generation coming with their own ideas, and creating a family discussion about it.”

Others may be focused on the legacy they will leave behind. Ms Lesperoy says this is particularly relevant for individuals and couples who don’t have children and are reflecting on the enduring impact of their lives. “Often they are also very active during their lifetime, supporting a lot of projects,” she says. “They would like that to continue after they pass away.”

Philanthropists are getting younger

The Covid-19 pandemic galvanised people to consider philanthropy as part of their wealth planning. Over the last decades, donors got younger, often starting out in their 50s rather than in their 60s and 70s, as had been more customary in the past.

Donors are becoming more sophisticated and strategically-minded in their approach to philanthropy.

Ms Lesperoy says donors are becoming more sophisticated and strategically-minded in their approach to philanthropy. Their goal is for their capital to make a tangible impact, which may mean supporting fewer projects, but with greater focus and intensity. “The donations they give tend to be higher,” she says, “and the donors are more engaged than they used to be, often becoming personally involved in a philanthropic project.” Increasingly, they are also happy to operate across borders to address significant global problems rather than just tackle local issues.

In terms of philanthropic priorities, education is a recurring choice, she says: “This might be supporting young people by giving an award or grants, or direct financial support for a university or school. We even see some philanthropists financing the establishment of schools from scratch. People recognise that they have benefited from support for their education, and want to pass that on.”

Audrey Lesperoy, Wealth Planner Team Leader at BIL

Science, health and poverty relief

Many philanthropists support scientific and health projects, which often requires larger, upfront commitments, while the alleviation of poverty is a priority for many people. Environmental concerns tend to be further down the list; while they may be a priority for national policymakers, companies and institutional investors, they are not yet attracting significant philanthropic capital.

Luxembourg is a particularly beneficial environment for philanthropy.

Luxembourg is a particularly beneficial environment for philanthropy, Ms Lesperoy says. The Fondation de Luxembourg assists donors in the structuring, development and monitoring of philanthropic projects in Europe and worldwide, while successive governments have established a generous fiscal environment for donations, offering taxpayers a tax deduction for donations to recognised public-interest foundations and organisations, up to 20% of the taxpayer’s net income or €1 million.

The government also offers a co-financing scheme for certain projects to be carried out in certain developing countries, with the state matching personal contributions to provide up to 75% of the total. This means a relatively small donation can have a much more significant impact.

Creating a philanthropy programme

Philanthropy is above all personal; many people are more involved in their philanthropy projects than in any other aspect of their financial planning. Ms Lesperoy says it is vital for people to be clear on the ambitions for their wealth, which is critical to deciding on the best strategy to achieve those ambitions. That includes considering the individual’s family situation and their financial means, and matching this with the type of support needed by the project. For example, some initiatives need up-front financing, while others would benefit from a smaller but regular income.

There are a range of structuring options; from a non-profit organisation (association sans but lucratif or ASBL) to a public-utility foundation, which are the 2 main structures for charitable organisations in Luxembourg. Ms Lesperoy says it is also possible to create a sheltered foundation under the umbrella of the Fondation de Luxembourg, providing the advantages of the creation of a public benefit foundation without the need to handle the many administrative formalities involved in setting up and maintaining such a structure. Clients will decide how much they want to be involved but will be assisted in the monitoring, on a regular and ongoing basis, of the activities put in place by their choices and decisions.

Public and private foundations

It is possible to create public utility or private foundations. Ms Lesperoy says: “Creating a private foundation, as is possible in Belgium, is different from a public utility foundation, which needs to have a purpose of general interest defined by law that benefits the public at large. A private foundation is required to have an altruistic purpose, but it doesn’t have to benefit the general interest.”

The best option will depend on the individual donor, but one obvious advantage of a foundation is its clearly defined purpose, where the donor structures the engagement, which can help in ensuring that their wishes continue to be followed after their death.

The investment strategy of the endowment of the foundation is particularly important. It should be aligned with the purpose of the foundation, or at least ensure that the investments are not harmful to the cause that an individual seeks to support. This calls for a targeted strategy from experienced investment managers.

Establishing a foundation can be complex, but the rewards for successfully implementing a philanthropy strategy right can be enormous, adding further purpose and meaning to a lifetime’s work.

A person may establish a foundation with the intention of including their children and grandchildren, helping educate the next generation about their values.