Build a lasting legacy…Vincent Holland’s article in the West Australian newspaper on philanthropy:
Leave a Gift to Charity in Your Will
Last year’s World Giving Index ranked Australia as the most generous nation in terms of how many of us contribute our time and money to worthy causes. However, according to Philanthropy Australia, when measured in absolute dollar terms, the amount of money we actually give tends to be less per person than other developed nations, particularly when affluent Australians are compared to their overseas counterparts.
On a domestic basis, the average charitable giving in the top 10 WA postcodes was only $147 per person in the year to February, or about 20 per cent less than the top 10 postcodes from NSW. In either case, the amount is relatively low.
One likely reason is that Australians are less aware of their philanthropic options, including the most appropriate legal structure for facilitating their giving strategy. Another is that philanthropy is often associated with the “rich and the famous” and outside the reach of the “ordinary” Australian.
How to leave a gift to charity behind…
You don’t need to be an ultra high-net worth individual to participate in philanthropy. An increasingly popular strategy is to leave an outright gift in a person’s will to a cause about which they feel passionate. The advantage of this option is that a gift that might otherwise have been unaffordable during a person’s lifetime can create a lasting legacy beyond it.
Many baby boomers, in particular, are starting to think about the legacy they would like to leave outside their immediate family. They may have adult children who are wealthy in their own right and are looking for ways to benefit not only their children, but the wider community.
For some individuals, a private ancillary fund can be an attractive structure, particularly given the potential tax benefits to the founder. The PAF could be set up during a person’s lifetime or only
on their death, or alternatively, set up to accept contributions both now and on the founder’s death.
A private ancillary fund is a trust which in turn donates to other deductible gift recipients. Because a PAF is, itself, a recipient, any donations to the PAF are, themselves, tax deductible and any income within the PAF is generally tax exempt.
A PAF is therefore a powerful tax planning tool and can give the founder considerable flexibility over the design and control of their own foundation. An important feature of a PAF is that, so long as it meets the minimum distribution requirements, it can last in perpetuity. In other words, with careful investment planning, the capital can be preserved and the income donated year after year.
A similar amount needed to justify setting up a self-managed superannuation fund would be needed to set up a PAF, that is, an initial sum of at least $250,000.
Vincent Holland is a Self-managed super fund, tax and succession planning lawyer at Forty Seven Legal.
