The knowledge that you are financially contributing to the greater good can be enormously satisfying. But many wealthy Australians are still unaware of the benefits of structuring their giving through a private ancillary fund – and how simple and cost effective these vehicles are to both establish and administer, if given the right advice.
A private ancillary fund (PAF) provides philanthropists with:
- A simple, efficient and cost effective vehicle for ongoing planned giving. The structure itself is income tax exempt and funds donated to the PAF can be tax deductible.
- Significant flexibility over the level of giving undertaken each year to eligible charities, with the only requirement being an annual minimum distribution of 5 per cent of the overall assets held in the PAF. The amount of giving undertaken each year can be higher than this minimum level if the PAF trustee would prefer to distribute funds more quickly.
- Complete control over which organisations are the beneficiaries of the grants, provided the recipients have a certain status.
Most importantly, by establishing a private ancillary fund during their lifetime, rather than leaving a bequest to charity, PAF holders are able to see the results of their generosity for themselves and share their philanthropic values with their families, inspiring future generations to follow in their footsteps.
Matters to consider
These structures require consideration of the following:
- An understanding of the not-for-profit sector in Australia to help PAF holders choose who should be the ultimate beneficiaries of their generosity.
- Planning for the correct drafting of the trust deed.
- Applying for the correct tax endorsement for the PAF (ie income tax exempt fund or tax concession charity).
- Grant making and evaluation of grants processes.
- Investments and donations compliance.
- Constitution of the trustee and the “responsible person” required.