The Season of Giving
We often refer to Christmas as the season for giving. But in reality, EOFY is one of the most popular times for philanthropy.
Around this time of year, it’s worthwhile, when reviewing your client’s affairs, to discuss the merits of structured giving or supporting a charity. Introducing the topic early gives everyone a chance to think about whether they might want to evolve their giving from a one-off EOFY donation to something more structured and lasting.
Philanthropy can be used as a highly effective tax planning strategy for your clients. In fact, in Australia, tax deductions for donations to eligible charities are uncapped, so there is no limit to the amount of donations to charity that can be claimed as a tax deduction. This provides an important incentive for larger-scale giving.
Helping your clients to give well
Philanthropy is not only for the likes of Twiggy Forrest. There are increasing numbers of fortunate Australians who can afford to give, and they are looking for the best way to use their wealth and often their skills, businesses and networks to give back to causes they care about.
But very few know how to effectively give to charity. They look to their trusted advisers for help getting started.
We do know that people look to their trusted adviser as first on their list to help them with giving, and for good reason! There are so many benefits to philanthropy for the client and the community.
When you are equipped to have this conversation with your clients, you can help them tap into important tax incentives for giving that can offer significant financial benefits.
At Elston, we help individuals, families and companies with giving.
Our Philanthropic Services have been designed to support the needs of professional advisers. We have deep expertise in philanthropy, and we can work with you, behind the scenes, or collaboratively with you and your clients.
We talk to individuals and families every day, from different backgrounds, and vastly different levels of wealth and giving interests. And we know that there are common questions that arise, especially towards the end of the financial year.
We have put together some helpful tips. You can use these to help you build the knowledge you need to talk to your clients about structured giving and creating a meaningful legacy.
What motivates people to give?
More people are giving. And they give for all sorts of different reasons. They might want to:
What does your client want?
Understanding your client’s motivation is one of the first steps. Once you know what motivates their philanthropy, you are in a better position to provide tailored advice and help them to be more effective in their philanthropy.
For clients who give directly to charity, this may be limited to ensuring donations made to deductible gift recipients are taken into account when finalising taxable income. For clients with capacity and interest in structured giving, advisers can become involved in the ongoing management of the giving structure or foundation.
Trigger points that can start a conversation
Typically, someone’s decision to make a significant donation will be triggered by one or many external factors. When these triggers are present, raising the topic of philanthropy can prove to be an effective means of engaging with your client as well as building trust and rapport.
Common triggers behind the decision to give to charity include:
It can bring families closer together
A common purpose for family giving is to create and express unity and shared values within the family.
Often the primary wealth builder within a family will initiate establishment of a family giving structure as a tool to involve the family and engage the younger generation.
Guidance may be needed to explore different decision-making frameworks. This will help the family to work together to achieve a shared vision from their giving.
Families that leave the strongest legacy are the ones that are unified across a shared set of values. Family philanthropy can be a powerful tool to build family cohesion and unity.
Tax effective structures for giving
Individuals and families can structure their giving by establishing a philanthropic trust.
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Many people choose to manage their giving over time using tax-efficient structures called ancillary funds.
For families seriously committed to giving back and getting involved, another structural option is setting up a charity. The main difference between a charity and an ancillary fund is that charities are not simply a trust. They deliver work and undertake projects that deliver benefits to society.
Private Ancillary Funds
An ancillary fund is a charitable trust established by deed for the purpose of making grants for public benefit in Australia.
They allow you to put aside a sum of money, to provide funding to eligible non-profit organisations, in a very tax effective way, over the long term.
Ancillary funds offer several tax benefits, which make them a popular choice for structured giving. They allow a donor to make a significant donation in one year to receive an immediate or deferred tax deduction, then use the money put aside to give to charity over time.
This can be very useful to those who have gained a large sum of money – through such events as an inheritance, sale of a business or property.
In addition to these income tax benefits, ancillary funds do not incur tax in their investment earnings. This is incredibly significant – essentially giving through an ancillary fund structure has the potential to enhance the tax benefits and the impact people can achieve through their giving.
There are two types of ancillary funds, private and public.
Private Ancillary Funds (commonly known as PAFs) are established and funded by a small number of donors – that might be an individual, family or corporate group –? and MUST not accept the majority of their donations from the general public.
To ensure private ancillary funds meet their philanthropic goal, ATO guidelines require funds to make a minimum annual distribution which is the greater of $11,000 or 5 per cent of the fund’s net asset value each financial year to type 1 DGRs.
It takes approximately 4-8 weeks to establish a PAF due to the various ATO and ACNC endorsements required. If a PAF is to be established prior to June 30, then it is best to commence the registration process in March – April.
Public Ancillary funds
PAFs generally take considerable time and expertise to operate and also require a substantial investment amount to be cost effective.
For those unwilling or unable to operate a PAF, but who want to take a more involved and structured approach to giving, a possible alternative is to use a Public Ancillary Fund (PuAF).
A PuAF is similar to a PAF in that it is a trust established for charitable purposes, however the legal, administrative and investment responsibilities are provided by a third party trustee.
When giving to a PuAF, a sub-fund may be established, with the donor providing recommendations to the PuAF on how the funds are to be distributed. However, the trustee is not obliged to follow these recommendations.
Public Ancillary Funds are popular with people who want to enjoy the benefits of structured giving, but don’t want to take on all the trustee responsibilities that a PAF demands.
For PuAFs, the minimum annual distribution is $8,800 or 4 per cent of the fund’s net asset value at the end of the previous year, whichever is greater.
The establishment process is usually quite quick. They can be set up within one week.
Elston Giving Foundation
After a number of years of helping clients to establish their own private ancillary funds, Elston established the Elston Giving Foundation , a public ancillary fund. Unlike a private ancillary fund, you are not required to shoulder any of the trustee responsibilities. This means you can save a substantial amount of time and money.
Within the Elston Giving Foundation you can establish a named sub-fund with as little as $25,000.
You receive an immediate tax deduction for the money you donate into the Foundation and the funds are pooled and professionally managed by Elston. Sub-funds can be set up within 48 hours. Grants can be distributed to charity over time.
Elston is here to help
If you’d like to find out more about EOFY Philanthropy, please contact our Philanthropic Services Team on 07 3211 9555 or email [email protected]
Communities, Climate, Philanthropy
8 个月A great summary Susan! There are so many great options re organisations to give to, who are creating positive change across Australia and internationally.