Making an effective gift to charity under your will

By Dan O'Connor • In Estate Planning, Estates, WillsComments Off on Making an effective gift to charity under your will

Australians are renowned for their generosity, but many people fail to reflect on the possibility of naming a charity when it comes to drafting their will. Most charities do not receive government support and therefore rely solely on donations to fund their philanthropic objectives. Charitable bequests are a great way for individuals to leave a meaningful contribution to the not-for-profit sector after they have died, and as you would expect, there are a number of ways to go about it.

The most common approach is to name a specific charity in your will that you wish to receive an entitlement. This can be either a specific donation (including shares or property) or an allocated fraction of your residual estate, and is a great way to show support for a cause that you are particularly connected to. When drafting the clause for such a charitable bequest the testator has the further option of instructing that the funds be applied to a specific project or purpose within the work of that charity. For example, a bequest to a major cancer charity may be made on the condition that the funds be applied to pancreatic cancer research specifically or used for support programs in a particular geographic region.

An alternate option is to leave a bequest to an established Public Ancillary Fund (PAF). A PAF is a trust fund established specifically to distribute philanthropic donations to worthy not-for-profit projects and organisations at the discretion of the directors of the fund. This allows your donation to reach a number of charities rather than simply those named in your will. Furthermore, since distributions are solely made from the income of the fund, your bequest can continue to support the not-for-profit sector in perpetuity. The Queensland Community Foundation (QCF) is a great example of a successful PAF; making over $2.2 million in philanthropic donations last year alone.

A third possibility is establishing your own PAF – commonly termed a ‘Private Ancillary Fund’. Much like the QCF, the trust can be applied to a variety of charitable purposes over the course of many years. When structured properly a PAF allows tax-effective grantmaking that ensures your philanthropic dollar goes much further. Establishing and maintaining a PAF is however expensive, and a minimum investment of $500,000 is recommended to make the undertaking worthwhile. As such, these types of testamentary instruments are only really viable for wealthy individuals.

For any of the above options it is crucial that the terms of your will are properly drafted to ensure the gift does not inadvertently fail. A number of charities have discrete registered entities for each State that they operate in (and may also have a national body), while others have differing names registered with the ASIC compared to the commonly associated charity name. Courts will readily invalidate a bequest if it is uncertain who the intended beneficiary is, and in any event; the need to go to court represents unnecessary costs on your estate.

Of course, a fact that many often fail to consider are the advantages of donating to charity during one’s lifetime. Not only are gifts tax deductible, but it gives the donor the chance to see their support being put to good use straight away.

If you would like to include a charity in your will please contact our experienced Estate Planning team.

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