There has been growing interest in philanthropy in Australia in recent years, and financial advisers may find it is a worthwhile area to discuss with clients as part of their overall retirement planning, explains Equity Trustees head of philanthropy Tabitha Lovett.
Many clients will have had some experience with philanthropy already – usually through donations to a range of charities or through fundraising events. They may even have thought about undertaking volunteer work when they retire.
However, they may not have considered establishing their own philanthropic foundation as part of their financial planning activities, despite the many advantages such structures provide.
Setting up a charitable foundation through their financial strategy, and consolidating their philanthropic activities, can be a tax-effective approach, and can also create the post-retirement interest that many retirees seek.
Some of the common questions asked about setting up a charitable foundation include:
1. Do you have to be very wealthy to set up a charitable foundation?
Many people will have heard of the charitable foundations set up by people like Bill Gates, Sir Reginald Ansett or the Myer family. This can give the impression that a foundation is only for the very wealthy, but in fact there is a philanthropic structure suitable for just about everyone.
Indeed, some philanthropic vehicles can be established with just $20,000 (see below) and they can be structured in ways to accommodate a wide range of financial circumstances and philanthropic interests.
2. What kind of charitable foundation should I consider?
There are generally three types of philanthropic structures, with a number of variables within each.
They are:
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Private Ancillary Funds (PAF) (often used for family foundations).
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Public Ancillary Funds – Charitable Accounts or Sub-Funds (PUF) (often referred to as community foundations).
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Testamentary Charitable Trusts (often referred to as will trusts).
Which option is the best will depend on how much the client would like to invest in establishing their foundation, the types of causes they would like to support, and how involved they want to be in the foundation’s grant making and investments.
The table below provides a starting point for comparing the options available:
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Type
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Minimum capital
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When created
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How it works
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Sub-Fund within a Public Ancillary Fund (PUF)
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$20,000
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During lifetime
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A charitable account or sub-fund is set up under the umbrella of a public foundation with its funds invested in a managed fund to distribute 4% or more of its market value each year.
|
|
Private Ancillary Fund (PAF)
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Approx. $300,000
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During lifetime
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A private foundation is established by deed with its funds invested in a bespoke portfolio or managed fund to distribute 5% or more of its market value each year.
|
|
Testamentary Trust
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$50,000 minimum
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After death
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A trust is set up in a client’s will to take effect after their death, administered by Trustees with its funds invested in a bespoke portfolio or managed fund to distribute its income each year.
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