Applied Philanthropy – Agenda Day 1

Time Session Lecturer

8:45-09:15 Introduction Tonika Hirdman
09:15-09:25 Definitions and legal context Tonika Hirdman

09:25-10:05 Philanthropy and Wealth Tonika Hirdman

Management:
- Guiding clients
- How to organize
- Selecting charities
10:05-10:20 Break
10:20-10:35 Introduction to Venture Tonika Hirdman
Philanthropy
10:35-11:00 The Mangrove Foundation – Guest speaker:
Testimony from a Hugo Mahieu
philanthropist CEO, The Mangrove
Foundation
11:00-11:15 Comparison of various Tonika Hirdman
approaches to giving
-Stand-alone foundation
-Umbrella foundation
-Trust
11:15-11:20 Short break
11:20-12:20 Case study Stanford Business Break out
School; Wealth and sessions
Philanthropy
12:20 -12:45 Conclusions Day 1 Tonika Hirdman
Applied Philanthropy – Agenda Day 2
Time Session Speaker
08:45-09:00 Refresher and follow-up of Tonika Hirdman
case study
09:00-10:00 Introduction to Microfinance Guest lecturer:
Laura Foschi,
Executive Director
ADA-Microfinance

10:00-10:05 The Sustainable Development Tonika Hirdman

Goals
10:05-10:20 Break
10:20-11:00 Fiscal aspects and forced Tonika Hirdman
heirship rules
11:00-11:05 Short Break
11:05-11:45 Case studies: Fiscal aspects Breakout sessions

11:45-12:00 Anti Money Laundering and Tonika Hirdman

Counter Terrorist financing

12:00-12:30 Luxembourg and philanthropy Tonika Hirdman

in a European context

12:30-12:45 Conclusions and Tonika Hirdman

End of Course
Introduction
The new stage of philanthropy
Increasing demand for philanthropy advice

90 % of UHNWI recognized the need for expert advice

on philanthropy
60 % of wealth advisors believe that philanthropy will
become a core service in European WM within five
years
The majority of wealth advisors do not feel that they
are adequately trained to discuss philanthropy with
their clients
Source: Scorpio partnership
Demand is growing for financial advisors who can help investors meet
their philanthropic as well as financial needs. “Wall Street Journal”
Why do people engage in Philanthropy?

Source:
Rapidly growing interest for philanthropic giving

Four groups of donors:

Entrepreneurs
Heirs
Legacies
Corporates
Education and Integration for All Foundation
Contribute to improving the living conditions of vulnerable children in Namibia

Quick view:
-Creation: 2009, by a Belgian
entrepreneur and his family

-Realisations: Construction of 10
schools in Namibia giving acces to
education and improving the lives of
900 orphans or vulnerable children
Structuring of the Mehozetu
network

-Perspective: Development of
revenue-generating activities to
create future independence

-Specificities: Strong personal

involvement by founder and his
family
The C. Ehrnrooth Foundation
Establishment of the C. Ehrnrooth Fellowship for post-
graduate training and research in neurological surgery.
A snapshot:

-Creation: 2010 by a wellknown

Finnish family

-Major realisations: 17 post-

graduate neurosurgeons from
across the world have been
granted a minimum of 18
months training and research
opportunity

-Perspective: Following the

success of the postgraduate
fellowship programme, two
one-year international clinical
fellowships have been
introduced.
Fondation Prairial
Social Entrepreneurship
Supporting the development of social entrepreneurship
in Europe

A glimpse on the impact:

-Creation: 2014 by a French

entrepreneur and his family

-Main achievements:
Support to various social
company incubators in
France: Antropia /
Entreprendre&+ /
Ashoka

-Specificity: strong personal

involvement of the founder
(selection
committees/coaching)
Definitions and
legal context
Some common concepts

Philanthropy vs Patronage (“Mecenat”)

Public benefit vs private interest
ASBL - Association - Non-profit organization
NGO - Non-governmental organization
Foundation
Trust
 Philanthropy and
wealth management
The Wealth Manager’s perspective

Investment Management

Financial Engineering

Value proposition/
Life-Style
Multiple benefits to the advisor from discussing philanthropy

What benefits do you see to providing philanthropy services?

Strengthening client relationships seen as key benefit

Guiding your clients
What are the main reasons for engaging in
philanthropy?

Give back to society.…

Self-fulfillment – Living a passion
Constructive reaction to a family tragedy
Create a longlasting legacy
A tool to bring the family together
Combining passions, needs and resources to
have an impact

Passions

Impact
Resources Needs

“It is more difficult to give money away intelligently than it is

to earn it in the first place.” Andrew Carnegie
Why create a foundation?

A proper structure for a long-term commitment

A reliable governance
Personal influence and control
Ensures administration, accounting, audits and fiscal
certification
Credibility and weight vis-à-vis beneficiaries
Donations are subject to fiscal deductibility.
Setting up a foundation - How does it work?

• Creation of the
• Philanthropic • List of potential sheltered foundation • Administer the • Projet(s) follow-up
aspirations and projects to support • Appointment of the donation process • Assess and report on
needs • Definition of the management • Arrange marketing the project impact
• Legal and fiscal structure committee and communication
framework • Definition of the
• Estate planning mandate to manage
the endowment
Key actors within the
Philanthropic engagement journey
Creating a foundation through a legs

Dormant foundation
Bequeathing assets through a will
Combined with a life insurance
What are the signals to watch for that can
trigger a philanthropy discussion?

What could be the angle to approach the

topic?
Checklist to make sure you cover the basis while
discussing a philanthropic project
Client interests and overall objective
Other existing philanthropic engagements that might
benefit from being consolidated with the project
Overall tax situation and residency
Family situation. Are there direct heirs?
Involvement of other family members
Level of envisaged commitment
Timing to get started
How to organize yourselves
What do clients need from their advisers?

Solutions regarding structure

Project selection, management and follow up
Wealth planning around project
Fiscal planning
Asset Management
Complex setup around philanthropy projects requires skilled
advisory

Donations as part of succession planning (forced heirship)

How to donate in a tax efficient manner (holding
companies/SIF/other structures)
Relevant topic to consider when selling a business
(maximizing tax benefit for company owner/donor)
Cross-border donations
Organizational questions

Dedicated team or integrated in wealth planning/wealth

management?
How do I charge for philanthropy advice?
When should I outsource specialist advice?
How can I encourage clients to take up the service?
How to organize the investment management – special
regime for foundations?
Selecting Charities
How to select charities
Research:
Research based on public information of the charity

Seeing and hearing:

Visit in situ & meeting with key people
Review of internal documentation
Liaising with public authorities and TGE-network

Analysis framework:
Governance, people & resources
Local partnerships and monitoring procedures
Capacity and results
Finances and level of funding
Monitoring of projects – Key Indicators
Relevance
What is the added value of the project
Do the objectives address the main needs

Feasibility
Is the project feasible with the proposed means?
Have the proper constraints been identified?

Durability:
Will the project continue beyond the durability of the support provided?
Which authorities are ready to support the project after the implementation?

Eficiency/Impact
Have the objectives been achieved or are they likely to be?
Is the situation of the end beneficiaries permanently affected by the project?
Will the project have a multiplier-effect?
Venture philanthropy
Venture philanthropy
The Mangrove Foundation
Testimony

Mangrove staff planting a tree in Senegal

Comparison of available
approaches to giving
Available structures for donations

Stand-alone foundation
Umbrella foundation
Trust
Stand-alone foundation
Advantages
Separate legal entity
Founder can decide purpose and name
Project ownership/control of project
Separate/Independent investment
policy
Founder can be member of the Board
Negotiation weight and credibility
towards beneficiary organization
Governance & perpetuity
Donation of capital, stocks, real estate
possible
Name of founder is publicly available
Revenues of the investment are
exempted from tax
Donations are tax-deductible under
Luxembourg law
Disadvantages
Initial process and costs for set up
Needs approval by Grand-Ducal
decree
Need for day-to-day
management, accounting, audit
and reporting to authorities
Administration costs
Inflexible – purpose is fixed
Minimum base endowment
Donations are irrevocable – can
never be paid back
Umbrella Foundation
Advantages Disadvantages
Project ownership / control of project A third party involvement
(Umbrella Foundation)
Founder is free to chose purpose and name
Depends on the legal
Founder is involved in strategic decisions, the
status of the Umbrella
operational aspects are taken care of by the Umbrella
Foundation
Foundation
Donations are
Clear separation of the philanthropy portfolio
irrevocable
Negotiation weight and credibility when negotiating
Minimum base
with organization (speaking from philanthropic
endowment
institution to philanthropic institution)
The foundation cannot
Easy setup, day-to-day management and reporting
conduct operational
included
activities
Qualified and knowledgeable advisory service
Limitations re fund-raising
provided
Founders may change purpose
Strong governance/Credibility
Fixed and transparent cost-base
Founders not subject to public record
Full tax efficiency (tax deductibility of donations and
return on investments are tax-exempted)
Trust
Advantages
Project ownership
Founder involved in strategic decisions;
operational aspects taken care of by
trustee
Clear separation of the philanthropy
portfolio
Negotiation weight and credibility when
negotiating with organization (speaking
from trust to philanthropic institution)
Flexibility: Possibility to mix philanthropic
and private cause
Founder may change purpose and
beneficiaries
Disadvantages
Less transparent structure if
family plans to communicate on
initiative
Requires setting up with qualified
staff for day-to-day
management/advice
Negative image of the trust
vehicle within non-profit world
Governance not adapted to
purpose
Not tax-exempted in most
countries
 Case study:
Philanthropy
advisory
Discussion questions

Has Lund described his philanthropic issues and

ideas sufficiently? What advice would you give
him? (timing, which charities, kids’ involvement,
funding)
Which giving structure would be most appropriate
for him?
What are some ways in which Lund could measure
his impact?

>
Microfinance
“We don’t have a plan B because there is
no planet B”, Ban Ki-Moon
Fiscal aspects and
forced heirship
rules
Tax and philanthropy

Two different ways for governments to grant

tax advantages to donors:
Tax credit
Tax deduction (more common)

>
Luxembourg tax framework for gifts/legacies

Gifts and inheritances received by a foundation are

subject to a donation or inheritance tax at a 4% rate
No taxation on gift or legacies that establish a foundation
Tax only due on registered gifts à informal gifts not
subject to gift tax
Gifts exceeding EUR 30,000 must be authorised by grand-
ducal decree in some cases
Each child may claim its legal reserve including life time
donations within 30 years after the day of the decease.
Fiscal Incentive – Luxembourg
Fiscal deductibility
Up to 20 % of gross salary/revenue
Maximum EUR 1.000.000 for which the level exceeding may be
carried forward over the next two years
Minimum donation: EUR 120
Only cash donations
Tax and philanthropy - Belgium
Tax credit
Tax credit equal to 45 % (individuals)/ tax deduction (companies)
Maximum 10 % of net revenues or EUR 392.200 (individuals) / Maximum
5% of taxable income or EUR 500.000 (companies)
Minimum EUR 40

Inheritance tax
If a Belgian resident dies within 3 years (Brussels & Flanders)/ 5 years
(Wallonia) of a tax-free donation, inheritance tax is due
Inheritance tax is 0 % Flemish region, 7 % Brussels, 7 % Wallonia

Forced heirship
Each child may claim its reserved portion of the estate of the deceased
person, which includes life-time donations, at the court of first instance
within 30 years after the day of the decease
Tax and philanthropy - France
Tax Credit
Tax credit equal to 66 % (individuals)/60% (companies) of value of gift up to
EUR 2 mln; 40% for gifts exceeding EUR 2 mln
Focus on promotion of French culture, humanitarian, the environment,
education, scientific purpose
Maximum reduction: 20 % of taxable income (individuals)/ 20 000 € or 0.5 % of
annual turnover (companies) - level exceeding may be carried forward over the
next 5 years
Inheritance tax
Up to 60 % between non-related parties
Exemption for bequests to foundations under certain conditions (scientific
research, cultural/artistic support, education and environment or animals).
Forced heirship
Gifts made that exceed the reserved portion of the estate may be contested by
each child according to forced heirship rules
Possibility for children to renounce their reserved portion (reg. with 2 notaries)
Tax and philanthropy - Germany
Fiscal deductibility
Up to 20 % of gross income or for foundations to be created, maximum
EUR 1.000.000 which may be carried forward over the next 10 years
(individuals)
up to the higher of 20% of net taxable income or 0.4% of the total of
turnover plus wages and salaries paid during the year (companies)

Inheritance tax
Exemption from German inheritance tax for bequests to EU foreign
public benefit foundations under conditions

Forced heirship
Each child may claim its reserved portion of the estate of the deceased
person which includes donations made within 10 years preceding the
decease. The value of the gift is reduced by 1/10 for each additional
year between the gift and the death.
Tax and philanthropy - Netherlands
Fiscal deductibility
Up to 10 % of gross income (individuals), up to 50 % of profits with
ceiling of EUR 100.000 (companies)
Minimum EUR 60 or 1 % of income

Inheritance tax
Charity institutions located in EU (registered as ANBI) are exempt from
inheritance tax.

Forced heirship
Gifts made during the five years preceding the decease of the donor
and that exceed the reserved portion of the estate may be contested by
each child according to forced heirship rules
> 5 years under special conditions
Cross-border giving
Transnational giving (TGE)
> Network of leading European foundations in 20
countries
> Created in 1997
> A practical solution for tax-effective cross-border giving

Judgement of the European Court of Justice in the case

C-318/07 creates jurisprudence for equal treatment within
the whole EU
Different approaches to giving

Endowment foundation
Turnover foundation
Dormant Foundation
Foundation with charge
“Legs en duo”
Legs en duo

When a testator would like to leave part of his inheritance to

remote heirs and therefore heavily taxed.
By combining a legs to a foundation and a remote heir the
inheritance tax is reduced for the heir and everyone wins.

Example:
A donor who legs 1000.000 EUR to a foundation, where a
predefined amount, e.g. 250.000 “net of tax” is to be paid to a
friend or a niece at the time of the transfer of the legs. The
foundation receives 750.000, but needs to pay the inheritance taxes
of both the foundation and the heir.
 Assessing AML/CFT
risks in philanthropic
giving
Anti Money laundering measures

Refusal of anonymous donations

Background check of donor (PEPs, sanctions-lists)
Origin of funds/wealth
Exclusively bank transfers from EU/EEA
Ask questions and, if necessary, request proof of
documents
Countering terrorist financing

Risk-based approach (country of operations)

Due diligence of beneficiary organizations
Documentation of internal procedures for risk
mitigation and names of subcontractors and
subgrantees
Monitoring of activity reports
3 Case studies –
Cross border giving
Forced Heirship
Legs en duo
Luxembourg and philanthropy
in a European context
Philanthropy: A common purpose

“ The Government intends to diversify the activities of

the Financial Center by reinforcing the mechanisms
necessary for the development of microfinance, socially
responsible investments, the financing of eco-
technologies, Islamic finance and philanthropy as a
corollary of private banking.”

Prime Minister Jean-Claude Juncker

Déclaration gouvernementale 2009
Fondation de Luxembourg
Created by the Luxembourg government.
Provides personalized support and guidance for
philanthropic engagement.
An umbrella foundation enabling individuals and
companies to create their own foundation structure.
 Why choose Luxembourg for establishing a foundation ?

Highly developed financial

centre with ability to Low national debt
Stable political and
manage clients’ and balanced
economic climate
Strong multijurisdictional interests budgets are a
government and international lifestyle guarantee for future
support for fiscal stability
philanthropy

Fully fledged
private banking
Expertise in cross- and wealth
border fiscal, legal management
and financial offering
matters

Central European
Possibility to leverage on location within
Luxembourg holding Euro zone
company creating fiscal
advantages Luxembourg
Strong expertise in
microfinance and
SRI
Luxembourg toolbox:
Possibility to
centralize all
structures, incl Attractive fiscal Legal continuity
foundation in one Foundations are deductibility
country exempt from regime for
taxation of philanthropic
revenues projects
Luxembourg comparison:
Factors taken into consideration

Constraints on
Flexibility re
Tax liability of Investment Legal framework
Ease of creation changes in
foundations policy/asset re governance
objective
classes

Existence of
an Limitations in terms Minimum capital Limitation in terms of
independent of spending of requirement at creation general interest
umbrella capital and minimum duration definition
structure
Luxembourg red and orange flags

Constraints on
Flexibility re Tax liability
investment
Ease of creation changes in of
policy/asset
objective Foundation
classes

Existence of Minimum capital

Limitations
Legal an requirement at Limitation in
in terms of
framework re independent creation and terms of general
spending of
governance umbrella minimum interest definition
capital
structure duration
Advantages with regards to Germany

Existence of
Constraints on Limitations in
an
Investment terms of
independen
policy/asset spending of
t umbrella
classes capital
structure
Founder has to
Risk, Ethics. Max decide whether
30% equity. For endowment or
endowment turnover
foundations, No foundation.
obligation to allocate Endowment
reserves of 1/3 of foundations need
revenue to observe capital
preservation rules.
Advantages with regards to Belgium

Tax liability of Foundation

Tax on legal entities 15-25%, level

depending on assets
Advantages with regards to France
Minimum capital
Limitation in
Flexibility re requirement at
Tax liability of terms of general Legal framework
changes in creation and
Foundation interest re governance
objective minimum
definition
duration
Tax-exempt,
Similar as in Legal responsibility of board,
except on compulsory reporting both to the
Possible, but Luxembourg, but Préfecture and to the Ministry of
commercial and Interior. Requirement on members
heavy process, activities need to of the board: Representatives of
France furnished real None by law, but
the Board has to be focused on the founders cannot exceed one-
Fondation estate revenues : in practice third of the board,
approve twice France, except for exceed
Qualified members, who cannot
d'Utilité 33,33% corporate authorities require one-third of the board, and
with 3/4 majority humanitarian aid Either a representative of the
Publique tax. Withholding € 1 million. State appointed by the Ministry of
and Ministry of or promotion of the Interior, or members by right,
tax abroad as tax
Interior validates French culture including at least one
treaties do not representative of the Ministry.
and language
cover foundations
Flexible, only
Legal responsibility
need to notify the
France Fond de Same as French of board,
Préfecture and None Same as above
Dotation foundation. supervised by
publish the
Préfecture
change
Established for a
minimum of 5 Legal responsibility
France
Same as French years, with a of board,
Corporate N/A Same as above
foundation. minimum of supervised by
Foundations
€150,000 Préfecture
endowment
Advantages with regards to the Netherlands

Existence of an
independent
umbrella structure

Netherlands No
Advantages with regards to Switzerland

The foundation framework in Switzerland is much more flexible than in

Luxembourg and offers more space for individual initiatives. Governance
is good.
Yet some studies point at a lack of coordination within the sector (12,000
foundations), leading to inefficiencies. It may in that sense be easier to
collaborate and find synergies in Luxembourg.
Finally Luxembourg is located within the EU and the Luxembourg toolbox
does attract a number of structures which founders may have an interest
to connect to their philanthropic initiatives.
Contact
Fondation de Luxembourg
Tonika Hirdman, Director General
Tel. +352 274 748 1
Fax. +352 274 748 279
www.fdlux.lu

@FondationLu
Fondation de Luxembourg