While Australians are generous with their money while they are alive, they are missing the opportunity to keep on giving when they have passed away. Sometimes they are even leaving their inheritance accompanied with a large tax bill.
For those looking for a way to give back to the community, a charitable trust could be the answer, where the money is invested for you, and you choose how you would like it to be distributed.
This way a person can donate money that continues to exist and grow well after their death. While the capital can remain stable or even grow, some or all the income that is earned can be distributed to the chosen charitable cause.
For example, consider the Archibald Prize, which supports artists in Australia, or even the Viertel Charitable Foundation, which supports medical research into diseases and alleviates the hardship of the aged and infirm.
Why choose a charitable trust structure?
While a charitable trust structure might seem like something for the ultra-wealthy, it is more achievable than you might think, even useful for those on the average wage.
However, there are some tax events those creating a trust need to be wary of.
While Australia officially removed death duties in 1979, there are a number of hidden taxes that good estate planners should know about, including capital gains tax (CGT) K3 events.
The main differences between charitable trusts and other types of trusts are:
- In most instances, the ‘rule against perpetuities’ does not apply to them, so they may exist forever.
- They are trusts for charitable purposes only and, therefore, there are no specifically named beneficiaries.
- They are heavily controlled by the courts and legislation.
- There are significant tax concessions.
Although the end charitable beneficiaries may be deductible gift recipients (DGR) charities, it is the charity trust itself that is seen as the beneficiary of the estate. And while it can be a tax-exempt entity, it cannot be a DGR charity, hence CGT event K3 may apply.
Importance of planning when creating a charitable trust
Establishing a charitable trust involves several steps, including defining the trust’s purpose, selecting trustees and registering with relevant authorities.
It is advisable to seek legal and financial advice to ensure compliance with all regulatory requirements and to maximise the benefits of the trust. For example, all charitable trusts and organisations must be registered with the Australian Charities and Not-for-profit Commission (ACNC) to apply for charity tax concessions from the Australian Taxation Office (ATO).
When it comes to setting up a will, it is important to consider what assets the trust is passing on.
We had a former client who passed away with around $2000,000 in shares that she purchased in the 1990s. If she had put this into a charitable trust it would have triggered a CGT K3 event, and it would have been a large tax bill for the charity.
However, through a deductible gift recipient we were able to set up a sub fund through the Equity Trustee Charitable Foundation and her shares were passed on tax free.
Have you established a charitable trust? Would you consider it? Let us know in the comments section below.
Disclaimer: Any advice in this article is general in nature and the views of the writer are independent of YourLifeChoices. Always check with a financial professional before making any major financial decisions.
Also read: Noel Whittaker explains what you should know before making a will
