In the next 20 years there will be a significant transfer of wealth from the older generations (baby boomers and gen X) to the younger generations. As part of the planning process, many people will be considering philanthropy.
Philanthropy can provide significant emotional and financial benefits for individuals and families. One mechanism to be considered is a private ancillary fund.
What is a private ancillary fund?
A Private Ancillary Fund (PAF) is a charitable trust that allows individuals, families, or corporations to establish a philanthropic structure to make tax-deductible contributions to eligible charitable organisations.
In summary:
- The PAF receives donations (usually tax deductible)
- The donations are invested and managed by the trustee
- The trustee decides on the timing and amount of the distribution to registered Deductible Gift Recipients (DGRs). Distributions are usually a minimum of 5% of the market value of the net assets of the fund
Emotional and Financial Benefits
The key benefits include
- Immediate Tax Deduction
Donors receive a full tax deduction for contributions in the year of donation. The deductibility of the donation is not dependent on the PAF granting donations to charity. This can be particularly helpful for tax planning - Strategic, Long-Term Giving
PAF allow for planned, sustained philanthropy – rather than ad-hoc donations. The donors can create a permanent giving vehicle that can operate continually - Control and Flexibility
The trustees retain control of the funds. As a result they control how the funds are invested within the PAF as well as being able to choose the DGR charities that will receive the distributions - Guidelines
PAFs are regulated by the Australian Charities and Not-for-profits Commission and the Taxation Administration (Private Ancillary Fund Guidelines) 2019. The guidelines cover a broad range of matters ranging from the purpose of the trust to the administration of the PAF. These are the ‘rules’ on how to manage your PAF which results in a level of control for the fund - Intergenerational Involvement
Children can be involved in the management of the PAF. This will help establish the philanthropic values of the family. The children can be involved in the investment-making decisions as well as choosing the DGR charities that will receive the distributions - Legacy Building
PAF are a formal structure that allow for giving beyond an individuals lifetime. This allows for PAF to align with the values of the individuals and families - The Warm Glow
Philanthropy can give a person a ‘warm glow’ by providing a sense of emotional satisfaction and joy from the act of giving to others. People derive pleasure, pride, or a positive boost in self-image simply from knowing they have helped, regardless of the tangible outcome of the recipients.
Being involved in philanthropy (including Private Ancillary Funds) as an individual or a family is great way to derive emotional and financial benefits.
Contact your local Accru advisor for assistance in incorporating philanthropy into your wealth planning.
