Philanthropic trusts for all
Increasing numbers of clients are expressing interest in establishing some form of trust fund for philanthropic purposes – either during their lifetimes as part of a family project (e.g to commemorate a deceased family member) or by way of Will upon death.
Different options for achieving family philanthropic outcomes
The tax and administrative requirements for establishing a registered charitable trust fund which qualifies for tax exemption on fund income and deductibility of donations can be prohibitive.
However, there are alternatives available that can often achieve the desired objectives by tapping into funds that are already registered with the relevant authorities.
More importantly, this can be achieved at different levels of fund size and contribution – you do not have to be a “high wealth individual” to contribute to what is effectively your own philanthropic fund.
Dedicated Trustee company philanthropic accounts
Some established trustee companies offer the ability to open a dedicated personal philanthropic account within one of their public funds.
This is aimed at allowing individuals to achieve the benefits of establishing an on-going philanthropic fund without having to bear the costs of establishing, registering and managing their own trust fund.
Establishing an account
The account bears the name of the person who opens it or to whom it is to be dedicated.
It is commenced with an establishment contribution which can be a little as $20,000. Subsequent contributions can be made as wished (including by Will).
Donations are tax deductible
Donations are tax deductible and for donations of more than $5,000 there is the ability to claim the deduction over a number of years.
Establishment amounts and investment options
The proceeds of the investment from that account can be directed to one or more endorsed charities specified by the client (there will be a limit to the number that can be specified – e.g. 5).
Alternatively, the client can specify one or more areas of charitable cause to which income from the account is to be applied (e.g. disability support, conservation and environment, the arts).
Depending upon the trustee company concerned, there can be a broad range of charitable funds and charitable purposes to which income from the philanthropic account can be directed.
There will be a minimum establishment contribution (e.g. $20,000 where charities are nominated and $100,000 where charitable causes are nominated), but there will usually be no minimum or maximum limit on subsequent contributions once the account had been established.
Other donors to an account
Members of the public can donate to the account and the charities concerned can promote contributions to the account.
Control and input
The trustee company runs the account as part of its general fund, but will report to the client on specifics of the account.
Although the trustee company must statutorily retain the right of final say on all investments, it is possible for clients to have some involvement in decisions such as identifying organisations whose goals meet the client’s criteria.
The Trustee company charges a fee for the facility (approx 1%-2% pa of funds in the account) and any external fund management fees are charged in addition.
Private Ancillary Funds
For high wealth individuals, separate trust funds in the form of Private Ancillary Funds (PAFs) can be established. Those funds also essentially channel contributions to established registered charities, but can provide a greater degree of control to the persons who establish them if those persons also establish their own trustee and management structures.
Alternatively, PAFs can also use the services of the public trustee companies to act as trustee and provide the necessary management services. For clients wishing to use a trustee company, the minimum contribution for a PAF is more substantial than the trusts discussed above (e.g $500,000).
Tony Riordan and Carmel Woodward can advise further on options for establishing philanthropic trusts as part of clients’ estate planning.