Michelle Bromley CFP®, Director & Private Client Adviser – Strategy and Advice
Feeling Generous: Exploring the Role of Private Ancillary Funds
In the realm of philanthropy and charitable giving, Private Ancillary Funds (PAFs) have emerged as a powerful tool for individuals and families to make a lasting impact on society. These funds offer a unique blend of strategic giving, tax effectiveness and family participation, enabling donors to effectively contribute to causes they are passionate about. In this article, we delve into the world of private ancillary funds, examining their significance, benefits, and considerations.
Understanding Private Ancillary Funds
A Private Ancillary Fund (PAF) is a not-for-profit trust established in Australia by individuals or a family group who, perhaps having contributed to charitable causes over the years, are now keen to engender a sense of social responsibility within their family by establishing a long-term, personalized charitable giving program.
Using a PAF, you can make tax-deductible donations which are invested for the long term. You, as Trustee, have responsibility for managing and distributing funds to charitable organizations who are endorsed by the ATO as Deductible Gift Recipients (DGRs). DGRs can span a wide range of sectors, from education and healthcare to environmental conservation and social welfare.
A PAF requires a specific Trust Deed, and the Trustee must be a corporate entity with a minimum of two directors. One must be an active director who has a degree of responsibility to the Australian community, such as a Solicitor or Chartered Accountant, whom is not a founder, a donor who has contributed more than $10,000, or their associate. Being a trustee of a charitable foundation means that you have ultimate legal responsibility for its governance and must act to ensure it is well run, compliant with the law and the Trust Deed, and provides funds for the benefit of the community.
Benefits of Private Ancillary Funds
Strategic Giving: One of the key advantages of PAFs is the ability to engage in strategic philanthropy. Founders and donors, who must have a close relationship, can tailor their giving to align with their values and passions, focusing on specific causes and initiatives that personally resonate.
Tax Efficiency: Once your PAF is established and endorsed as a Deductible Gift Recipient, donations to your PAF are tax-deductible and PAF earnings are tax-free with franking credits refunded. The ability to apportion tax deductions over five years from the date of the initial donation makes establishing a PAF attractive.
Long-Term Impact: PAFs are designed for sustained giving. Donors can establish guidelines for grant-making, ensuring that their contributions continue to make a difference over time. This approach fosters stability and continuity in the charitable landscape, as PAFs can support ongoing projects, research, and initiatives.
Family Involvement: A PAF allows donors to involve family members and future generations in investment management and grant-making decisions, fostering a culture of philanthropy, allowing younger members to learn about the importance of giving and to actively participate in the decision-making process. This encourages a culture of giving within the family and supports the growth of philanthropic endeavours.
Private Ancillary Funds offer a dynamic and personalized approach to philanthropy, enabling individuals and families to make a meaningful and lasting impact on society. Through strategic giving, tax benefits, and intergenerational involvement, PAFs play a crucial role in shaping a more compassionate and sustainable world. While navigating the challenges associated with PAFs requires thoughtful consideration, the potential for positive change they hold remains undeniable.