Christmas giving without end: Equity Trustees

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Having a well thought out financial strategy should include a structured and long-term approach to philanthropic giving that goes beyond this Christmas, says Tabitha Lovett, head of philanthropy at Equity Trustees.

Tabitha Lovett

“At this time of year the thoughts of many turn to giving.  We give presents to our family and our friends and many of us give donations to charities in response to end-of-year Christmas appeals,” Ms Lovett says.

It’s easy to respond to those appeal letters that find their way into mailboxes, but is this really the best way to support charities, she asks.

“There are a number of other different ways to give to charitable organisations that can be more personally rewarding for a donor and, importantly, can support charities more meaningfully,” says Ms Lovett.

“A good financial strategy should include a structured and long-term approach to philanthropic giving, which will also provide tax advantages.”

Ms Lovett maintains that it is possible for individuals to establish a perpetual charitable trust, and that it does not need to be expensive or complicated.

“There are a number of misconceptions about establishment, operation and flexibility of such trusts, that often deters people. There is also a perception that charitable trusts are only for the very wealthy, which just isn’t the case.  A donation of $20,000 is all you need.”

Embarking on a strategic philanthropic journey can be rewarding for all involved – the client, the financial adviser, and the charitable sector, Ms Lovett says.

“Ultimately, a perpetual charitable trust can help to better fulfil a donor’s intentions in a much more appropriate and lasting manner and will ensure a greater impact on their chosen charity or cause rather than ad hoc donations.”

Equity Trustees’ Chief Investment Officer George Boubouras points out that a typical charitable or perpetual trust requires a consistent dividend yield greater than the broader equity market with a focus on enhancing the franking credit to achieve one of their key objectives.

“A diversified growth fund is a good starting point noting that the asset allocation will be a major driver of total returns over the long term. Importantly, the asset allocation will reflect the expected returns (capital gain and income) and the risk tolerance through economic cycles. The core Australian equity allocation for a typical perpetual trust needs to focus on defensive sectors that generate predictable dividends. As a reference point, we are currently targeting a grossed up dividend yield of 7.8% for the EQT Australian equity dividend fund.”

Ms Lovett outlines the three main types of charitable trusts or funds typically in use, and under which circumstances each option is suitable.

Charitable accounts or sub-funds

These are individual funds set up under the umbrella of a public ancillary fund (PuAF), Ms Lovett says.

“PuAFs are recommended for those who want to start small, but nevertheless wish to have some direction over which charities or causes they support. A sub-fund with a PuAF, such as the EQT Foundation, can be established with $20,000. Sub-funds are a particularly good option for people who don’t want to be involved with investment decisions. Additional contributions can be made over time to build up the capital base.

“Donations to sub-funds attract the same tax deductions and considerations as making a donation directly to a charity. For those on a high income, there can be significant tax advantages in this approach as donations are tax deductible and the deductions to the donor’s income can be upfront or spread across five years.

“The income generated from the charitable account or sub-fund is distributed year after year to charitable organisations.”

Private ancillary funds (PAFs)

“PAFs are often used for family foundations and are suitable for those who can donate at least $300,000 in investible assets,” Ms Lovett says.

“For those who want to have some control over their foundation’s investment strategy, an ATO-endorsed PAF may be the best option. The income generated by a PAF’s investments is tax-free so that funds available each year are not depleted through tax.

“There are currently more than 1000 PAFs in Australia which distribute around $200 million annually to charitable organisations.

“This form of structured giving is increasingly being used by families in Australia interested in being involved with philanthropy, as it allows all generations to be involved.”

Testamentary charitable trusts

Testamentary trusts are the traditional way of leaving a lasting legacy and are a common vehicle for distributing funds to charitable organisations and causes,” Ms Lovett says.

“Testamentary trusts differ from other philanthropic options in that the beneficiaries don’t have to be a Deductible Gift Recipient, making the options for giving wider.

“Income produced within the trust fund is tax-free, but the initial establishment amount is not tax deductible, as the trust comes into effect on a person’s death through their Will. This means the benefactor doesn’t have to be concerned with the consequences of gifting money during their lifetime or being involved with the trust’s administration.

“The testator can nominate specific charities or identify charitable causes that they wish income to go to in the future.  A family member or professional adviser can be nominated as a co-trustee or it can be left in the hands of a professional trustee company.

“As you can see the options for philanthropic giving are many and varied, great wealth is not required, and giving doesn’t have to be limited to one off donations in response to a charitable appeal,” Ms Lovett says.

She observes that the past 10 years has seen the introduction of a range of philanthropic structures to encourage and facilitate much greater levels of giving.

“As many of those who make charitable donations through one of these structures find, philanthropy provides benefits for the givers as well as the receivers,” Ms Lovett says.

Equity Trustees has specialist knowledge in the establishment and administration of charitable trusts and funds, says Ms Lovett.

“We have been helping clients to set-up testamentary trusts for more than 100 years and we have a PuAF called the EQT Foundation. Equity Trustees also manages a number of Private Ancillary Funds for clients.

“The combination of grant-making experience and investment expertise, means Equity Trustees is well placed to assist financial advisers to develop solutions that will meet their clients’ financial planning needs,” says Ms Lovett.

Equity Trustees Limited (EQT) is a publicly listed company that provides a range of financial services to corporate and private clients. Its businesses include asset management, distribution, responsible entity appointments, private client wealth management, and corporate and personal superannuation.


 For more information contact:

Carolyn Munckton – Mobile: 0407 874 393


12 December 2013