If recent statistics are anything to go by, Australians are a generous lot when it comes to philanthropy and charitable donations. In 2014, Australian charities had a total income of $103 billion, of which donations and bequests comprised $6.8 billion (or 6.6%), and in 2012-13 donations, bequests and legacies from households in Australia amounted to approximately $4 billion.
With thousands of philanthropic organisations registered by way of Private and Public Ancillary Funds and other subsets of charitable trusts, choosing which one to make a lasting contribution to can be overwhelming. While you want to benefit a cause that is close to your heart, you also want to ensure your generous donations are being handled efficiently and effectively so your cause receives maximum benefit.
From a wealth planning perspective, it’s important to get the right advice when it comes to gifting and donations, estate planning, or founding your own legacy. At Elston, we specialise in educating clients on every aspect of philanthropic pursuits and charitable donations. Elston Director, Brett Ulrick, weighs in on some important considerations for those who want to make a difference.
Exploring your options
Typically as people get older, they accrue more wealth and reduce working hours. As such many clients look at ways to utilise their time and money to give back to the community and support causes they are passionate about. Says Ulrick, “The main thing our clients want to know is what their options are. Some want guidance with planning their estates to include passing on a legacy, or sometimes family dynamics mean they may not have anyone to leave their assets to. Our role as advisers is to help them explore and understand the options that are available.”
Fundamentally, these options can be divided into “one off” donations versus structured giving. Public Ancillary Funds and Private Ancillary Funds are the two types of philanthropic options available to facilitate structured giving. Both provide the option of giving over a lifetime, or can be setup as a perpetual legacy via the estate.
“Our specialised advice has assisted clients across every structure,” says Ulrick. “For several wealthy clients we’ve assisted in the setup of their Private Ancillary Fund and manage the investments. This facilitates structured giving during the clients’ lifetime and provides a good way to engage the next generation to think about money and how it should be managed.”
Key considerations for charitable gifting
When choosing which structure will best suit your needs, Elston encourages clients to ask themselves the following questions:
- How much do you intend to give?
- Who will be the beneficiaries – charities or individuals?
- What will be the timeframe for donations?
- How much do you plan to give each year?
- How involved do you want to be in the day-to-day operations?
- Are you seeking a tax deduction for donations?
“These key considerations provide a framework to determine which structure would best suit your objectives and vision,” explains Ulrick. “They will also lend clarity to your financial position from a wealth planning perspective.”
Spreading your wealth and managing tax
There are a numerous variables when it comes to the financial and taxable elements of philanthropy, and naturally this will depend on your budgetary parameters and the structure you have elected. As a guideline:
- Private Ancillary Funds: The minimum suggested amount to commence is $500k; and the minimum that must be gifted to charities with Item 1 DGR Status annually is the greater of $11,000 or 5% of the fund value each year. While you retain full control of the fund you cannot seek or receive contributions from the public, therefore your PAF can only be funded from personal contributions and from those with a close association to the founder. In addition, a Responsible Person (a member of a professional association governed by a code of ethics), must be appointed to serve as trustee.
- Public Ancillary Funds: You are not the Trustee and have less control over the gifting, but you can make requests which are typically followed. The minimum gifting requirement is 4% of the fund’s balance.
- Charitable Donations: To be tax deductible, your donation must be made to a deductible gift recipient (DGR), which means the organisation is entitled to receive tax-deductible gifts and tax-deductible contributions.
“Tax concessions can be maximised to align with a client’s financial strategy,” explains Ulrick. “Structured giving provides a very effective tax management solution. You can spread tax deductions over five years so it’s very flexible. A typical situation where we see this strategy of structured gifting considered may be at the time of a major CGT event such as a business sale or realisation of some other significant “money in motion” transaction.”
The right advice from a financial planner
Accessing specialist advice is essential when it comes to setting up a fund. As well as consulting with your financial planner, Ulrick recommends seeking specific legal advice. “For example, the money contributed to a fund cannot be given back. Although the philanthropist can continue to manage their own Private Ancillary Fund, the assets of the fund no longer belong to them. It is vital this is clearly understood.”
Elston paves the way for clients to set up and manage their philanthropic endeavours through informed and effective wealth planning. Commencing with a discussion to establish your unique goals and objectives, we’ll partner with you for the long term, sharing the management and journey of your charitable structure.
“Elston can help manage your money and document your investment strategy, recommending solutions grounded in transparency and healthy income generation,” says Ulrick. “When we meet with clients as part of their annual review, we not only assess strategies to offset tax, and ensure long term objectives are on track; we evaluate their wealth planning from a holistic viewpoint to ensure the causes closest to their heart are properly benefitting from their generosity.”
If you would like to learn more about incorporating philanthropy or charitable gifting into your financial plan, call Elston on 1300 elston or email email@example.com.