Philanthropy can be hugely personal, and making decisions about long-term grantmaking can be difficult. Andrew Carnegie, widely regarded as the father of modern US philanthropy, reportedly said it was "easier to make money than it was to give it away." Having a PAF enables a family to make those decisions together.
You will need to design an investment strategy that will provide long-term capital growth and a regular flow of income to meet your foundation’s objectives in perpetuity.
State trust law requires that the trustees of all foundations, including PAFs, have regard to several matters, including the benefits of diversification and the need to consider mission, risks, costs and tax when investing trust funds. The PAF Guidelines (2009) also set further specific restrictions. All of these need to be incorporated in the investment strategy and considered as part of the annual investment review.
There are a number of favourable tax advantages relating to a PAF that generally allow them to generate better long-term returns than an equivalent investment outside a PAF.
For example, subject to the terms of your will, a donation to an existing Deductible Gift Recipient (DGR) status approved PAF through your will removes capital gains tax on the assets donated. This increases the value of your foundation, allowing it to provide more support for your chosen charities.
"PAFs can register as a charity," says Ward, "and thereby attain income tax exemption, and the ability to reclaim from the ATO in cash any franking credits attached to dividends received form Australian companies."
"One of the key benefits of putting a structure, like a PAF, around your giving includes the ability to give money away whilst also growing your philanthropic capital in a tax-free environment," explains Ward. "Good returns can see the amount you have to give away grow over time."
It is important that you speak to your financial adviser who can assist you with an investment strategy for your PAF that maximises these benefits. You should also consider obtaining legal and tax advice before establishing your foundation, as every donation you make to your PAF is irreversible.
1 Australian Financial Review Philanthropy 50 List 2019, May 2019.
This article has been prepared by Godfrey Pembroke Limited ABN 23 002 336 254 AFSL 230690. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this article is current as at 19/11/2019. While care has been taken in the preparation of this article, no liability is accepted by Godfrey Pembroke Limited or its related entities, agents or employees for any loss arising from reliance on this article. Any opinions expressed constitute our views at the time of issue and are subject to change. Any tax information provided in this article is intended as a guide only. It is not intended to be a substitute for specialised tax advice. We recommend that you consult with a registered tax agent.