21 September 2021

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21 September 2021

Private Ancillary Funds and Philanthropy

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Cassandra Macolino

HEAD OF WEALTH STRATEGY

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Private Ancillary Funds and Philanthropy - Stellan Capital

According to Fundraising Institute Australia (FIA), as of 2021 more than 80% of Australians give to Charities or not-for-profits. For some financially established families, there has been a marked increase in the establishment and use of privately run funds that combine the benefits of aligning a family’s values with steady annual giving that come with significant tax advantages for the family itself.

A private charitable fund can be a more flexible, tax-effective structure to allow philanthropic goals to be achieved over time rather than through big ‘lump sums’ bequeathed through a Will.

Although Private Ancillary Funds (“PAFs”) can be established through a Will following an individual’s passing, the vast majority are established by the patron(s) during their lifetime for ongoing long term use.

PAF – What is it?

A Private Ancillary Fund is a type of charitable trust designed to provide individuals or families with an investment structure for philanthropic purposes. The money gifted can only be from associated or ‘private’ parties, not the general public. Those private patrons then are eligible to receive an immediate tax deduction.

The most common PAF triggers

Often investors with philanthropic motivations bequeath a particular dollar amount or percentage of their wealth to the charity that aligns with their life’s values. However for some, certain events like the sale of a business or property or an inheritance generate a large Capital Gains Tax event. A PAF can be the individual’s best opportunity to bring forward all their future charitable gifts while reducing a significant tax bill.

Private Ancillary Funds and Philanthropy - Stellan Capital

The intangible benefits that come with having your own PAF include being able, during your own lifetime, to educate and instil values with your children or family members which are important to you or the family itself. You can also stream, target and evolve your philanthropic objectives over many years instead of just one individual irrevocable bequest.

Getting the right fit

If you have thought about donating wealth upon passing but have a considerable tax position that you may have to deal with in one singular event, a more tax-effective strategy such as a PAF might allow you to achieve multiple goals beyond just one donation.

Typical objectives might include:

  • To establish long-term personalised giving program
  • To be involved in varying targeted charitable projects over just one
  • To spread your philanthropy over long time periods
  • To introduce family members and future generations to the value of philanthropy

Trigger events might include capital gains events associated with:

  • Sale of a business
  • Sale of a large property
  • Resettlement of a trust
  • Rebalancing an equity portfolio with large, imbedded capital gains
 

This article contains information of a general nature only and does not take your personal circumstances into account. Please read our disclaimer which directs you to seek independent professional advice before making any decisions based on information in this article.

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