Christmas: 'tis the time for giving

by |
Christmas is a time for giving – but your clients’ financial strategy should include a structured and long-term approach to philanthropic giving that goes well beyond the next month.

While most people think more about giving at this time of year, donating in response to end-of-year Christmas appeals is not the most effective way to support charities, said Equity Trustees head of philanthropy Tabitha Lovett.  

“There are a number of other different ways to give to charitable organisations that can be more personally rewarding for a donor and, importantly, can support charities more meaningfully.

“A good financial strategy should include a structured and long-term approach to philanthropic giving, which will also provide tax advantages.”

Financial planners are well-placed to help clients establish a perpetual charitable trust which does not need to be expensive or complicated, she said.

“There are a number of misconceptions about establishment, operation and flexibility of such trusts, that often deters people. There is also a perception that charitable trusts are only for the very wealthy, which just isn’t the case. A donation of $20,000 is all you need.”

There are three main types of charitable trusts or funds typically in use:

Charitable accounts or sub-funds

These are individual funds set up under the umbrella of a public ancillary fund, said Lovett.

“[These] are recommended for those who want to start small, but nevertheless wish to have some direction over which charities or causes they support.”

It can be established with $20,000 and are a good option for people who don’t want to be involved with investment decisions.

Additional contributions can be made over time to build up the capital base, and there can be significant tax advantages in this approach for those on a high income as donations are tax deductible, she said. 

Private ancillary funds (PAFs)

There are currently more than 1000 PAFs in Australia which distribute around $200 million annually to charitable organisations.

“PAFs are often used for family foundations and are suitable for those who can donate at least $300,000 in investible assets,” said Lovett.

 Testamentary charitable trusts

Testamentary trusts are the traditional way of leaving a lasting legacy and are a common vehicle for distributing funds to charitable organisations and causes, said Lovett.

“Income produced within the trust fund is tax-free, but the initial establishment amount is not tax deductible, as the trust comes into effect on a person’s death through their will.

“This means the benefactor doesn’t have to be concerned with the consequences of gifting money during their lifetime or being involved with the trust’s administration.”