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Best ways to give: which charitable trust is right for you?

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While Australia is usually seen as lagging other countries such as the US when it comes to charitable giving, we are starting to see a growing interest in philanthropy in this country.

We are becoming more open about our philanthropic passions.

There are two key trends driving this growth. One is the increasing propensity of wealthier individuals to use their money to contribute to community and global change. In part this is triggered by the seeming inability of governments to provide adequate social support in areas that have traditionally fallen within their domain.

The second trend is the ageing of wealthy baby-boomers, who are looking to transfer their wealth, but not necessarily to their children or other family members. The giant global intergenerational wealth shift has commenced.

charitable trusts philanthropy Sub-fund within a Public Ancillary Fund Private Ancillary Fund Testamentary Trust

For those who are interested in taking a structured approach to their philanthropic activities, there are three main options:

For those who have a reasonable amount of capital to donate, but not hundreds of thousands of dollars, and who wish to be involved in granting during their lifetime, a sub fund (or PuAF) is the best approach.

Of the other options, Private Ancillary Funds (PAFs) are more suitable for those who can donate at least $200,000 to establish the trust. This minimum threshold essentially supports the generation of income to facilitate minimum distribution requirements, in addition to administration, reporting and compliance costs, such as an annual audit. These structures are often used for family foundations.

Testamentary Charitable Trusts are established in Wills and are the traditional way of leaving a lasting legacy. The key difference with a testamentary trust is that beneficiaries don't have to be an ATO registered deductible gift recipient, providing broader options for giving.

How do sub-funds work?

Sub-funds are recommended for those who are seeking to start with a smaller donation and still wish to have some control over the charities or causes they support. Additional tax deductible contributions can be made over time to further grow the capital base.

They are a particularly good option for people who don't want to be involved with investment decisions, compliance and governance requirements, or carry the responsibilities of maintaining a trust.

Sub-funds must distribute the equivalent of four percent of the fund's market value (capital and income), compared to PAFs which must distribute five percent each year.

They are a tax-effective way of granting to eligible charities, attracting the same tax deductions as a direct donation. This can be particularly useful for those on a high income - funds or property donated must be valued by the Australian Tax Office at greater than $5000; donors can claim the tax deductions in the income year in which the donation is made, or spread the deduction over the four income years immediately following the donation.

The income generated from the charitable account or sub-fund can be distributed annually to eligible charitable organisations.

Sub-funds usually have much lower establishment costs compared to a PAF but all the same benefits, including simplified administration and compliance management. The costs of audits, tax reporting and administration are also lower.

Donations to the sub-fund are invested specifically to meet the objectives of charitable foundations - in particular, consistent income yield and capital growth, greater than inflation.

As well as individuals being able to claim a tax-deduction on their donation, all income and capital growth of the sub-fund's investments are tax free, as they are endorsed by the ATO as tax exempt.

The sub-fund has a trustee that manages the investment, governance and administration, so that the donors are free to focus on the issues in their community they wish to support.

For those seeking more assistance or advice, trust companies are well placed to help people create the right charitable trust for them to meet their philanthropic and financial objectives.

This information has been provided by Australian Unity Trustees Limited ABN 55 162 061 556, of Level 7, 189 Flinders Lane, Melbourne, VIC 3200, AFSL, 483220. Any advice in this publication is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. Before making any decisions, you should obtain financial advice relevant to your circumstances and refer to our Financial Services Guide and Fee Schedule. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Nothing in this publication represents an offer or solicitation by Australian Unity Trustees Ltd in relation to securities or investments in any jurisdiction. Australian Unity Trustees Limited does not warrant the accuracy or completeness of any information included in this publication which was contributed by a third party. Whilst every care has been taken in the preparation of this information, it may not remain current after the date on which it is published and Australian Unity Trustees Limited and its related bodies corporate make no representation as to its accuracy or completeness. Australian Unity Trustees Limited accepts no liability for any loss or damage suffered as a result of reliance on this information.

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Emma Sakellaris is executive general manager of Australian Unity Trustees Limited.
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