Tara (00:50):
Hello, it's episode 38. Thank you so much for tuning in. Now this episode is a little bit different to normal.
(01:00):
It is a conversation that I had with a special guest, Denise Chang, who is the general manager of philanthropy and community trustee services at Equity trustees. And Denise came and very generously shared her knowledge and insights with the Art of Estate Planning Group in a special training that we have every month to talk to us about some of the vehicles available for structuring, charitable giving under a will. Now, if you're like me, you're probably comfortable and familiar with the concept of including a specific gift of cash to a charity in a will. But I start to get a little bit out of my depth when it comes to understanding the charitable trusts available and also some of the more modern charitable trust vehicles that organisations like equity trustees can offer. So Denise very generously shares how these vehicles work, what they are, and some of the tools that we can have in our tool when it comes to taking a more strategic approach to charitable giving in a will. So I really hope you enjoy this conversation with Denise.
Denise (02:19):
Amazing. Thanks Tara. And I'm so pleased to be here and really appreciate the warm welcome. And I've been sitting on the periphery of the Facebook page for a couple of months now and love the dialogue and the sharing that happens in the community. So just really appreciative of the opportunity to chat about one of my favourite topics. So just a little bit of context. As Tara mentioned, I'm part of the philanthropy team here at Equity Trustees. We have been in the charitable trust space for more than 145 years. And not only do we support families who are no longer with us and their philanthropic legacies, but we also support up and coming philanthropists who are activating giving during their lifetime. So pleased to be able to share a little bit about our journey and the type of products that we're able to offer families and individuals across Australia.
(03:09):
So today I'm going to cover off giving in general. So what is the context that we're currently in Australia today when people are thinking about their giving, why they might be thinking about their giving, and as Tara said, some of the structures that allow families to activate their giving. And hopefully by the end of the hour you'll actually have some of the understanding of what are some of the triggers for clients when they're contemplating philanthropy, understand the different structures that exist in Australia and have a couple of conversation starters when you think you might have the right opportunity to present it as an option to your client. Really wanted to give you guys the context of the environment that we're currently operating in in terms of charitable giving in Australia. So the latest ACNC, so our regulators numbers, which were from 2023 19 billion, was donated all bequested in Australia in that year, an incredible amount of money.
(04:11):
And interestingly, some of the research that we undertook earlier this year, late last year was that 96% of our respondents and there was about a thousand people who were interviewed actually gave in the previous 12 months. And interestingly, tax wasn't the key motivator, and in fact it was while it was seen, windfall was seen as one of the triggers. It wasn't the most important one. And really it was actually around alignment to cause a desire to make a difference and having trust in a particular charity. And as Tara alluded to, we are definitely seeing the conversation around philanthropy and giving coming up more and more, whether it be estate planning conversations or succession conversations, conversations with the accountant, with the tax advisor. And it's because of this stat that we've heard very frequently in the media most recently, this 5.4 trillion that will be handed down over the next 20 years.
(05:12):
So that's the latest figure that's come out of JB Weir in their bequest report, 5.4 trillion and it's going to be 150 billion in this year alone. Another trend that we're seeing, which again is we're seeing a little bit more in our conversations with clients, the increase of females being the custodians of that wealth transfer and the women in the family being the holders of that wealth in the next generation. And a third trend that we're definitely seeing more and more of is those families that don't actually have succession. So households without children. And what does the conversation about giving and philanthropy mean for families without children? So I'm sure the when and when people give is very familiar to each of you. We're all familiar with the concept of a direct gift. So whether it's 30 June and you give it to a tax appeal or it might be a friend raising money for breast cancer or doing a fun run, they're doing the city's surf.
(06:13):
And so you give a little bit of money. Direct giving is very, very common and we also see it very common that people are giving gifts via their estate and you guys are the subject matter experts in that, a gift to RSPCA or the Salvation Army or Fred Hollows to their favourite organisation. And so we often see direct giving out of your bank account and then a cash gift in the will. Something that's less familiar but is definitely growing in popularity is that middle box which we call structured philanthropy or structured giving. So these are opportunities to leverage charitable trust structures to start giving either during someone's lifetime or via someone's will, but activating and leveraging the power of investments in order to be more strategic around giving. And today's conversation is all about what does structured philanthropy mean and what could it mean for your clients?
(07:10):
So structured giving in a very simple table is effectively moms and dads individual givers, and even sometimes corporates and not-for-profits making contributions into a vehicle. It is a trust structure. Those monies in that trust structure are in a tax exempt environment and it's invested in a tax effective way and each and every year the investment income from those trusts is donated out to eligible charities. And depending on the product that the clients are leveraging, it might be a combination of either a minimum 4% distribution, a 5% distribution, or potentially a percentage of income. But that's effectively what structure giving is, leveraging the power of investments to take a one-off contribution and it creating impact over the long term. At equity trustees, we've got about 1200 of these under management and each and every year these trusts that we manage contributing almost a hundred million to the charitable sector each and every year, something we're incredibly proud of.
(08:21):
This is actually a real example of one of our clients that put a million dollars into a structured vehicle back in '98. So clients seeded with a million dollars, they've actually made no additional contributions since many of our families will add in year after year. This family chose to just put in a one-off donation of a million. As of today, that account is now valued at 2.9 million. And again, reiterating the fact that she's not added anything in since then, but it's now worth 2.9million and '98, this family has distributed 1.8 3,000,00 to community and that original 1 million hasn't actually been touched. That corpus has grown over time in more than one and a half times the original value. So that is an incredible real life example of the power of structured giving. So we talks at the beginning about what are the triggers for people thinking about philanthropy, why do they give?
(09:24):
For many families it is a financial reason for starting their philanthropy and starting a structured giving journey. They want to take advantage of the tax benefits. Tax deductions happen when money is put into the account, not when money is distributed to the organisation and their charitable beneficiary. It's about seeding now and giving later. It's about maximising tax benefits right here, right now and really leveraging those tax exempt investment returns. And for some of our families, it's actually about thinking through, okay, I've actually got some discretionary income now. I may not have discretionary income in 5, 10, 15 years time, so I'm going to start preparing now, saving for that time where I won't have as much cashflow and then ensuring that there is a pot of funds available for my philanthropy in the longer term. So a lot of people start thinking about that strategy element, which leads me to that second box, which is because the financial and the taxes incentive happens at the outset, it allows people time to make strategic decisions about where they want to give.
(10:36):
It means that they can think carefully about it. Okay, I've got a research project that I want to support that's over a five 10 year period because research often takes that long for outcomes to be seen and I'm setting aside a pot of funds, I'm going to have it invested and then I want monies to be distributed out in a strategic way over the next 10 years. It separates a financial incentive from the strategic giving and that becomes then it allows people to be more considered and purposeful around their philanthropy and as I said, gives people time and space to add that strategic lens. I think the third box is probably where we see most of our families and clients in terms of why they actually start giving. Because more often than not, it's actually to do with the heart and it's about honouring someone's legacy.
(11:29):
It's about the opportunity to give back to community. It's about sharing the love of giving and the responsibility of wealth and the responsibility of giving back to the next generation. And that final point speaks to our households with our families, but for some clients it's actually about creating that enduring legacy that lasts beyond their lifetime and especially in the case where there is no children to continue their personal legacy. So there are three products that we have here at equity trustees and many of our friends in the sector also have similar products and you'll know them as oftentimes you'll hear people refer to the words of foundation and that's often what they're referring to. And a perpetual charitable trust, which is probably something that you are quite familiar with in the estate planning world, what we call ancillary funds are the ones most used by philanthropists wanting to activate their giving during their lifetime.
(12:33):
And then the public ancillary fund sub-account and the perpetual charitable trust are the two that we most see activated by it via an estate plan. So I'll go through each of these products and talk through the relevance for you as a estate planning specialist. So a private ancillary fund is most similar to a self-managed super fund and is often because of the fact that a private ancillary fund is a standalone trust structure that is registered with the ATO and with the ACNC our regulator and is managed as a family's individual vehicle. So the only people connected to a private ancillary fund are the family members and their associates. A private ancillary fund has a trustee, so the trustee can be the family members within a corporate trustee structure, or alternatively, equity trustees can be either a sole trustee or a co-trustee. Equity doesn't have to manage the investments.
(13:34):
We work with a number of investment advisors to support the family around the investments. And what is very attractive about the private ancillary fund is that the tax deductions that a family receives when they put money into the structure, that tax benefit can be spread over five years. So it becomes really interesting for the family when they're talking to their tax accountant if they've got capital gains events that are happening over a multi-year period with a private ancillary fund, giving is restricted to DGR 1. So deductible gift recipient status item one, and as mentioned previously, there is a minimum distribution requirement for a private ancillary fund and that's 5%. So that's calculated as at the 30th of June valuation of the account and 5% is of the 32 value is what is distributed in the following year because of the complexity of setting up a private ancillary fund going through the ATO needing their own audit and financials, we do normally recommend that seed donations started around the $1 million mark if we're working with a financial advisor to do the investments, that's a $3 million starting point, but yet because of complexity, because of the costs attached, we do recommend that that's a million dollars is about the right starting point for those clients.
(14:56):
A public ancillary fund subaccount, this is the product that is leveraged by the client that I had just mentioned in the previous slide, a subaccount, I like to describe it like being an industry super fund equity trustees manages the umbrella account and each individual family has a sub-account within the umbrella trust. We manage all the governance and compliance, we manage all the administration so that all the family has to do is really focus on the philanthropy and on the giving. And so for those families that are wanting to be strategic around their philanthropy but have less of an interest in the investments, then this is actually the perfect vehicle for them because really the giving looks and feels exactly as it would if you were a founder of a private ancillary fund. Again, as mentioned, giving is restricted to DGR one entities. Tax benefits can be spread over five years.
(15:55):
The only difference being is a 4% minimum distribution, but there are some government changes coming down the line where that might change again in the next few months or years. Now the great thing about the public ancillary fund sub count is that it can be started during someone's lifetime or potentially activated in someone's will. And so when, if clients aren't quite ready to start it right here, right now, it is an option to leverage the same vehicle but via the will. And I'll share why that's advantageous for certain clients in a few moments. But one of the things about the subaccount compared to the private ancillary fund, it is much more accessible. There's only a $5,000 seed donation that required to establish that. And of course families can continue adding in tax deductible contributions each and every year to build their philanthropic pot. But the great thing about the subaccount is very cost effective for the client to operate.
(16:55):
And because some of the governance and compliance costs are spread across the many families within the umbrella or the disbursement costs are shared, and so you pay a prorated amount and it becomes quite cost efficient within the umbrella trust. The last product, which I wanted to chat to you guys about today is what we call the perpetual charitable trust. It's sometimes called a testamentary charitable trust, but effectively it's a trust that's activated by the will and on the test date is passing. Some interesting things about the perpetual charitable trust is that it is probably what we've has been historically popular, mainly because ancillary funds didn't exist until about 20 years ago. So many of the trusts under equity trustee stewardship are in fact perpetual charitable trust. They are the more traditional trust structure. And there are some certain advantages with a perpetual charitable trust, which I'll go into in a second.
(17:58):
But if families are approaching us around philanthropy either during their lifetime or in their will, depending on the type of giving they want to do, more often than not, we are finding that we are recommending the sub-account of the public ancillary fund as the more effective and efficient option for them. But going back to the PCT as mentioned, it is activated via the will and effectively the wishes in the will become the guiding instrument for the trust and the ongoing stewardship of the giving. There is no tax benefit for PCT, it is tax exempt. So all the investments and the investment income is opera is being generated in a tax exempt environment, but there is no deductibility for the estate if you're setting up a PCT, there will be relevance for that later on. So I'll come back to that in a moment. There is also greater flexibility around the giving for a perpetual trail book trust.
(18:56):
So for those clients that want to give to a non DGR one, and oftentimes we find that there are a couple of areas where it gets a bit tricky around DGR one and namely sport. However, sport as a conduit to supporting someone with a disability for example is DGR one gets a bit complex there, but sport animals as opposed to animal warfare. So animals per se is not actually charitable and DGR one. So there's a couple of things that if a client is specifically interested in those areas, then a PCT is perfect because normally those items can fall under charitable purpose. But for any of, if anyone on the call has a specific question around that, please definitely reach out and we can go into the detail of your client's particular situation. And probably the only difference between a PCT and an ancillary fund is that distributions are usually a proportion of investment income as opposed to a percentage of value. But as mentioned, PCTs are becoming, we're using that structure less often because we're finding that a public ancillary subaccount is usually the most fit for purpose for most clients we're chatting to that are reaching out around structured philanthropy.
Tara (20:15):
Denise, can I ask a question? I've got so many questions and I'm sure you're going to answer them, and it's just so fascinating to see those different structures side by side with the PCT.
(20:26):
Are there rules around who can be a controller, I assume as a trustee of the trust? Is that something equity trustees normally does or is it more privately managed by whoever the test data nominates?
Denise (20:41):
That's really good question, Tara. And I was just chatting to my estate planning colleagues earlier today about the exact point. So if equity trustees can be nominated as the trustee, and it was actually something I was going to cover off later on, it becomes really interesting to consider who the trustee is, mainly because perpetual Charitable Trust, as the title says, they're perpetual. They don't have the 80 year rule that obviously testamentary trusts have. So the consideration point is very much around, well, who once the nominated trustee that a person passes away or is no longer able to be a trustee, who is that person who will manage, who will be the manager of that philanthropic legacy beyond that trustee's lifetime?
(21:30):
And the other consideration is, is that perpetual charitable trusts are regulated by the ATO, by the ACNC and under trust law. And so ideally you'll have someone that actually has the expertise and then the understanding of the compliance and governance obligations in order to make sure that they're not in breach of the regulators. And hence why many families and estate planners often will refer clients to us because as a professional licenced trustee company, this is our bread and butter, this is what we do on a day-to-day basis and we do compliance and governance at scale, which is one of the advantages of potentially outsourcing that trustee duty.
Tara (22:11):
Yeah, that's what's going through my head. The suitability and responsibility of that role needs a lot of consideration.
Denise (22:22):
Definitely. And it's probably not dissimilar to the conversation we have with clients around who are you going to appoint as your executor? Does the potential nominee know what their responsibilities will be and what the workload might be and director duty effectively.
(22:40):
So a lot to think about when we're working in this space, particularly when we're talking perpetuity. It's a long time. I'll come back to that perpetuity conversation in a second as well. But great question, Tara.
(22:54):
Does your client want to start something during their lifetime and enjoy the power of philanthropy and the joy of giving? Or does their cash flow and their inclination lean towards setting up philanthropy after they've passed away? And again, there's nothing, absolutely nothing stopping clients just putting in a cash gift in their will. But when you explain to a client the power of compound interest and leveraging the framework of investments to turn a million dollars into potentially 2.9 after 25 years and the potential impact of that initial gift, then the cogs start ticking in a family's brain going, oh, that means my legacy can live well beyond my lifetime.
(23:41):
So it becomes really interesting for clients to think through. But as mentioned, we often start with the end in mind and we often will ask a client, well, who do you want to give to? Who are your favourite charities? What do you currently give to now? And depending on what their answer is, that will then take you down the two parts of the tree.
(24:02):
So if they are already giving to DGR one organisations and realistically, most of the key names that you would recognise are DGR one, so your Smith families, your Fred Hollows, your Medicine San Frontier, your Royal Flying Doctor service, all those organisations, the DGR one, and realistically it makes more sense, it's more cost effective for clients to go down the ancillary fund route. If a client says, I want to fund a non DGR one and Animals Australia is an example of organisation, which that is registered on the ACNC but doesn't have DGR one, then the PCT route becomes the better fit for the client.
(24:46):
When we are thinking through giving via an estate plan and in a will, these are definitely some of those questions that I work through with a family. When we're chatting about through the options as I mentioned, the first thing is actually to start with the end in mind actually asking the client, well, what do you want to give to? What do you want to support? Who are your favourite organisation and what's the why of your legacy? And by understanding the who, then we can unpack whether or not that organisation is a registered organisation, is it a registered purpose and is it actually even an eligible candidate for a structured giving vehicle?
(25:31):
One of the interesting things that is definitely worth asking a client is are those charities in Australia or are they actually overseas? Because the minute you introduce overseas beneficiaries, it becomes quite tricky and namely for the reason that trust structures in Australia, the majority of the distributions, so the money leaving the trust account each year, the majority of it has to actually stay in Australia or be given to DGR one charities.
(26:05):
So for example, if the beneficiaries is a hospital in Hong Kong or in East Timor or in Europe, yes it has charitable purpose, but because it's an overseas entity, it has to stay under that 50% in order for it to be in a charitable structure it to be in a charitable trust in Australia. So you may be better off recommending to the client for it to be a cash gift in the will.
(26:33):
Does the client want to make a cash gift or are they actually wanting to gift a specific asset? The number of times that clients have said to us, oh, we want to gift our gift, our dog collection to the Australian museum, we want to give our collection of paintings to the art gallery. One of the things that we do recommend to our estate planning specialists is definitely encourage the client to reach out to the intended beneficiary, particularly if you're talking assets because one, the beneficiary may not fit within their collection, it may not fit within their purpose or they may not be in a position to accept it from a maintenance perspective.
(27:17):
So it's always best to ensure that clients have had a conversation with the intended beneficiary and just check the beneficiary actually wants the assets. We've had some really unfortunate stories where the beneficiaries have actually said no, and then we're in a bit of a quandary of what to do with those physical assets. Definitely a question, and again, something that we've been talking about in this entire presentation, is it an outright gift? Is it a cash gift or is in fact a structured giving vehicle and a gift in perpetuity, something that might work for your client?
(27:51):
One of the things which a lot of our estate planning specialists haven't necessarily considered in the context of charitable giving is, what is the tax position of the assets in your client's estate? So are there potential CGT implications? Is the estate plan going to be up for a sizable tax bill when the estate moves into a state admin?
(28:18):
And one of the things that is quite interesting about the products that I've shared with you today is that some of those products can potentially be tax favourable for an estate plan. So depending if the client is wanting to support a DGR one and they've got tax that needs to be offset, then the leveraging an ancillary funds or a private ancillary fund or a public ancillary fund can actually be quite tax effective for the estate. A perpetual charitable trust as mentioned contributions into a perpetual charitable trust aren't deductible. And so if you can potentially create some tax efficiencies by choosing the right products. So something that becomes a really interesting conversation with the accountant when you are drafting the estate plan, are there existing vehicles that can be inserted in Many of the families that are coming to us to have their estate planning done, they actually already have.
(29:22):
They've already set up a subaccount during their lifetime, they've got a private ancillary fund, and we've got clauses already for all of those scenarios which can be inserted into a standard precedent and allows a family to just add their residual estate into an existing structure. And nothing new has to be set up. And it's a good question to ask to say, Hey, do you already have a sub-account? Do you already have a path? Because you don't need to then build something from scratch within the will.
(29:51):
And Tara, exactly your question from earlier, if you are thinking of creating a perpetual charitable trust and a client's will, strong consideration needs to be around who will be the trustee? Is it a family member? Is it the executor? Is it an advisor? But what does succession look like? What happens when that person needs to resign? What happens next?
(30:15):
And again, that point is often the reason why equity trustees and other professional trustee companies are approached, because we don't die. We will be here for the term of the perpetual charitable trust. So yeah, succession and that trustee appointment is something to be conscious of, which then leads me into the next point of perpetuity is a long time. And one thing that we encourage our specialists to think through is what are we drafting? What are the instructions that our client is leaving in the will and is it future proof? So one of our trusts here at equity trustees is the test data has put it in his perpetual travel trust that he wants his money, his philanthropic legacy to be contributed to a research into polio. Now as we know, we have a solution for that. We now have a vaccine. And so what do we do in that case of, and so I think we went to that one resulted in a cyra application, but you really don't want to have to be doing a cyra application and applying to the courts for a change in a will.
(31:25):
So it's really important to think through how can we future proof the directions and the wishes and ensure that there's broad application, should society change, should things evolve and should problems disappear? And often what we will, and the same to be said of naming beneficiaries, many of our families have included specific beneficiaries like the Fred Hollows or the Salvation Army and the like. The reality is most of those organisations will continue to exist many, many years into the future, but there are always going to be mergers in our sector. There's always going to be charities that close they're doors because they're no longer needed. So always really important to include a substitution clause and allow for trustees of the future to ensure that our client's legacies can be honoured and executed. And one thing we really encourage our specialists to do is ensure if the wishes, if there are specific or even loose wishes in the will, really encourage families to put some of their thinking and their thoughts down on paper in what we would call a letter of wishes.
(32:39):
It's always really useful 20, 30 years down the track to reflect back on what was the original intention of the client. And that will sometimes and will actually always influence our interpretation of what has been drafted in the will. But lots of things to think about. But I invite you to, if you've ever got any questions or you've got a scenario that you want to brainstorm, please reach out. Always happy to chat. And yeah, always happy to be a sounding board if you've got any queries that you might be presented by your client. Before I wrap up, wanted to bit of a case study of one of our favourite perpetual charitable trusts. So Joan Peterson created a charitable trust in 2006, and as you can see there, she was quite specific. She was gifting a property for families needing respite from treatment for if their child was experiencing cancer.
(33:37):
The great thing about how the will was drafted was that it wasn't tied specifically to a specific organisation. It extended a wish that organisations like Camp Quality could be the beneficiary of the trust. And in fact, camp quality still continues to be our partner for this particular trust and gives us the flexibility to work with the identified beneficiary to ensure that Jones legacy is executed. Interestingly with this particular will, Joan also gave us access to her share portfolio and that share portfolio allows for the ongoing maintenance of the property. It allows us to pay for land tax council rates and all of those costs that are incorporated within the property. And it goes back to that future proofing piece around drafting is that a asset like a property is amazing, but the reality of land and property is that it needs to be maintained. There's always going to be costs involved.
(34:42):
And Joan was incredible in thinking ahead and saying, Hey, we don't want the families to be living in a house that's falling down around them. As it happens, this particular property is in Salamander Bay and was impacted by all the weather we had two weeks ago and unfortunately has a leak in the roof, so the trust is now paying for some of the repairs on the property. So yeah, so really smart forward thinking by Joan in terms of thinking ahead for and to ensure that her legacy is executed as she wished. As I mentioned earlier, lots of different things to think about when considering whether or not philanthropy might be a suitable option for your clients, whether right now or via their will. Obviously tax a windfall event is a massive trigger for philanthropy and is often the way we start conversations with they've sold a business, they've sold shares, they've received inheritance, and that triggers tax.
(35:42):
And sometimes creating a structured giving vehicle will allow that tax to be offset. As mentioned, next generation succession planning often is a trigger for philanthropy, but in the same token, families, families without families and without a next generation philanthropy is a really beautiful next step for them in terms of considering their legacy succession does get. As you guys know, succession gets tricky when there's blended families and philanthropy sometimes is actually a really beautiful way of bringing blended families together and is often the reason why a lot of our families start are structured to bring all those, connect all the family dynamics and it is a structure and strategy often will allow for a common foundation for a family to connect. If a family's already giving in a very significant way year on year, that can be coming up. That's often a powerful trigger for moving towards a structure that will allow them to create greater impact over the long term.
(36:49):
And as mentioned, a life event, someone passing away wanting to honour their memory is often another strong trigger for starting a journey towards philanthropy. And the last thing, that last point there is very much that piece of I want my life to mean something. I want my legacy to be more than my lifetime. I want this to mean something. And often those sentiments often are a really great precursor to a conversation around giving. Some of the questions that I often ask when I meet a family for a first time and often is a great way to introduce the concept of philanthropy. Do they already give? What are some of their favourite charities? Do they volunteer? Are they thinking about legacy after they've passed away? And obviously a gifting will is a great place to start that conversation. In terms of working with equity, we find that a conversation around philanthropy and giving starts a different conversation.
(37:49):
It's a very similar to estate planning when you're talking about life beyond you and succession. It creates deep connection and trust with families. And it's what I love about giving. It is a great opportunity to have a different conversation around estate planning and it often leads to new opportunities. And the great thing about working with us is we've got a team of 20 who have deep connection within the full purpose sector and we're distributing a hundred million a year to community. So we have an incredible breadth of knowledge that we are more than happy to share with others. All you have to do is reach out.
(38:30):
And before I wrap up, I've mentioned it a few times today, some of the other services that equity trustees offers, which I'm sure many of you are familiar with, is that we are subject matter experts in terms of trustee services, whether that be the establishment of family trusts or continuing trusts, personal injury trusts, disability, and we also have a very significant indigenous native title trust service estates, whether that be executor appointments or estate admin. We have a wealth management team in-house supporting our individuals and families. And we also have a tax team who we definitely lean on a lot when we are ensuring that the charitable structures and also state planning solutions we are putting in place is the most tax effective for our families. So just wanted to share that all things trust we're more than happy to help.
Tara (39:22):
Thank you so much, Denise. That was so informative. I wanted to talk to Denise about drafting, particularly the perpetual charitable trust. So as you know at the art of Estate planning, we provide will templates and particularly testamentary trust is our little genius zone. And I often get asked, oh, well do you have the charitable trust precedent? And I don't. We don't because I do feel like it's a specialised area and I'm very mindful of it being done in a half-baked way.
(40:01):
And as you said before, you mentioned Denise, the SPR application and really just not the objectives being achieved. So Denise, let me know if I've misunderstood this, but equity trustees can work with you as the drafting lawyer to update or add into your will the terms to establish the perpetual trust and you can collaborate so that you can bring in that expertise to create the structure that you need without referring the entire matter over. Is that right?
Denise (40:37):
Exactly right. Yeah. And particularly where equity you do want to appoint an external trustee and to our earlier discussions of being conscious of what does succession look like for that perpetual charitable trust. But yeah, most definitely able to review clauses that pertain specifically to that charitable trust and obviously an option there if you need an external appointment,
Tara (41:01):
That's incredible. I have this notion and whether it's right or not of a bit like the old, I'll just give my wife the right to occupy or the life of estate in the property and these sort of old fashioned ideas of estate planning that a lot of the general public still has. And I feel like charitable trust and charitable giving potentially falls in that category too, where we are often sitting in front of a client who's this idea of wanting to set up a charitable trust, but either they don't have quite the amount of assets to really justify setting up one or they haven't really thought through the practic, they have the right intentions at heart, but they don't really think through the logistics and administration and who they want to manage it.
Denise (42:01):
No, definitely.
Tara (42:01):
I was really excited to hear about the public ancillary fund as another option to still, maybe they don't have enough to support a full charitable trust, but the public ancillary fund is there. So can you talk to us a little bit about how much involvement is there in nominating the charities who benefit?
Denise (42:28):
Yeah, definitely. Yeah, really good question. Taran, and that's the thing, probably one thing I probably didn't reinforce enough is perpetual Charitable Trusts, the PCT, it's probably one of the most expensive structures to operate mainly because of the way it is very manual, similar to the private ancillary fund, it needs to be registered separately and at a certain level, financial statements need to be prepared, yada, yada, yada. You've got ACNC, you've got to fill out a million forms. And it is costed at that because of the extra level of governance and the in saying that a perpetual charitable trust is fantastic when you're dealing with non DGR one entities.
(43:13):
So if your client is very adamant that they want to support a particular type of organisation then, and it may very well with the PCT is the best option. The other thing to think about is actually the cashflow piece.
(43:26):
And Tara, to your point of not necessarily thinking through the options, I had a client recently where they were like, I want the organisation to receive 20,000 a year forever. And they thought, and I'm like, well, if you are wanting it to be forever, that means, and you're only giving a percentage of the investment income, that means you've got to have enough corpus to generate 20,000 of investment income. And it's actually thinking through the numbers and the cashflow of how much do you need in capital in order to generate enough income to create sustainability forever.
(44:00):
So it's actually thinking through with the client, what do you actually want to, and hence why I always say start with the end in mind and then work backwards. And then it's thinking through, okay, at what point could the gift fail and then trying to work around those challenges.
(44:18):
Tara, your question around how specific do we need to be in instructions? So the great thing about, and I guess it depends ultimately on how much control does the, often as we know, families often want to control from the grave, and it also is oftentimes how much control do they want to have. Some of our families will always be very specific around the entity, so they want to support Salvation Army or RFDS or Guide dogs because that's the connection with that entity. And the reality is most of those organisations, the gift won't fail because those orgs will always be with us. A lot of our families will actually put cause areas in place. So I want to support the support of young people and mental health, or I want to support the wellbeing of the age in our community, or I want to ensure that I fund activities that promote social inclusion.
(45:14):
And then it allows the trustee to actually look at the cause area and assess who are the most eligible beneficiaries at the time of distribution. And again, that's our area of expertise in terms of subject matter experts on this side saying, if you've got this cause area, these are the five best suited beneficiaries to support and deliver on that objective. But yeah, more often than not, we are actually saying to clients, you are wanting to support DGR one clients, then the sub-account of a public ancillary fund is probably the most efficient and effective way of creating greatest impact for your legacy.
Tara (45:56):
Yeah, I'm sort of sitting here, we have a lot of sole practitioners in our community and I for one, I wouldn't say that I know a lot about the philanthropy landscape or the regulatory environment with it, and I'm good with drafting a specific gift of cash to a charity in the will, but when it comes to something more than that, where as you said, they come up with all these crazy ideas, yeah, $20,000 a year for great, but what's the reality of that? I just love the idea of us being supported by the team at equity trustees to really help have a structured conversation with the client about the options and there are cash gift, perpetual charitable trust, the two types of the ancillary funds and the reality checking of it. And to really just have someone who knows what they're doing to say, well, okay, this is what's going to happen with these assets that are not currently illiquid. Here's the problems with the charity that you want. Here's some other ways we can still achieve what you want to achieve at the core purpose, but not in the way that you are thinking of. Just to sort of avoid the worst case is there is funding available and because of the legal framework, it ends up getting wasted on...
Denise (47:30):
It just gets messy for the executor to actually execute longer term. That's it. The worst thing would be is for the gift to fail and the testator's legacy, it just gets caught up in just mess at the end of the day. I think ultimately we just want to do good for the community. And so yeah, always happy to have a conversation and we've got some sample precedents that we can all cause that can be adjusted as well. So please, definitely more than happy to have a conversation.
