Trust in the Future: Testamentary Charitable Trusts

A testamentary charitable trust is created under a Will and may consist of specific assets or a set proportion of the estate of the person making the Will (‘the testator’). The purpose of the trust is to support specified charitable work or charities of the testator’s choosing.

As the Will sets out the terms of the trust, the testator can dictate how the trust will operate. A testator may also wish to establish multiple charitable trusts under their Will for differing purposes and on differing terms.

Benefits of testamentary charitable trusts

Testamentary charitable trusts allow the testator more control over the application of funds, especially when compared to a simple gift which will often be applied towards the imprecise objective of a charity’s ‘general purposes’.

A charitable trust which allows trustee discretion for distributions allows the trusts to remain relevant parallel to advancements in research and technology (including new causes that may arise in the future), whilst providing a larger benefit over time than what might be achieved by an outright gift. For example, a trust with $1 million of initial capital that distributes 5 per cent per annum and generates income and capital growth at a comparable rate will distribute more over a longer period of time than a one-off bequest of $1 million.

The beneficiaries of a testamentary charitable trust do not necessarily have to be registered with the Australian Taxation Office as ‘deductible gift recipients’, which sets them apart from Public Ancillary Funds and gives the trustee flexibility in administering the trust.

Further, charitable trusts are exempt from income and capital gains tax that may be payable as a result of their investment portfolios and may be entitled to other tax concessions including refunds of franking credits relating to dividend income.

Disadvantages of testamentary charitable trusts

The major disadvantage of a testamentary charitable trust is that the provisions in the trust deed may be too limiting. For example, the trust’s deed may not take into account future developments in research or technology, which can limit charitable giving opportunities.

A charitable trust can also be expensive to administer and if the capital allocated to the trust is relatively modest, there may not be sufficient income generated to justify such costs.

There is also the danger of a Family Provision application against the estate depleting the assets of the trust before it is even established, especially if the family members feel that a disproportionate amount of the testator’s estate has been left to the trust.

Conclusion

If you are interested in including a testamentary charitable trust in your Will or if you simply wish to discuss your estate planning further, the experienced team at Bell Legal Group are more than happy to ensure that your wishes can be carried out considering all circumstances.

 

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For further information and assistance on any estate planning or estate administration matter, please contact a member of our experienced team at Bell Legal Group on 07 5597 3366 or complete the ‘Contact Us‘ form below.

This publication was written by Josephine Vernon a solicitor with Bell Legal group. It is for information only is not legal advice nor should it be treated as such.