Many of us wish to give something back to the community and one of the most popular ways is through a charitable foundation.
A charitable foundation can be established by anyone who wishes to take a structured and ongoing approach to giving. Many people establish foundations that continue after they have died through bequests from their estate.
Why would I establish a charitable foundation?
You may consider making a contribution to the community through the establishment of a charitable foundation where:
- your financial and taxation circumstances have changed, such as a recent or proposed sale of a business or your income has increased substantially
- you have received an inheritance or have funds available and wish to create a lasting legacy
- you wish to begin or continue making a contribution to the community but in a way that allows you greater control over the direction of your giving strategy
- you would benefit from the ability to claim a tax deduction for initial and ongoing donations.
When and how to establish your foundation
- Establish your charitable foundation during your lifetime (there may be tax advantages in doing this) so you and your family can become active in its direction.
- Establish a charitable foundation in your will.
Benefits of a charitable foundation
By establishing a charitable foundation in your lifetime you may be able to:
- obtain a tax deduction for initial and ongoing donations and spread the tax deduction for up to five years against your assessable income
- take greater control over your charitable giving
- have the flexibility to vary your giving program to suit your aims.
What structure is best?
By establishing a charitable foundation in your lifetime you may be able to:
- will trusts that come into existence after a person's death
- prescribed private funds
- public foundations called "ancillary funds".
Will trusts
You can establish a charitable foundation in your will which allows you to use your accumulated wealth during your lifetime. A will trust also permits distributions to individuals, whereas some charitable foundations created during your lifetime do not.
Where you establish a charitable foundation in your will, you should consider that:
- it requires interpretation of your wishes by others
- no tax deduction will be available.
Prescribed private funds
Prescribed private funds allow individuals, families and companies to make tax-deductible donations to their own charitable foundation, which then distributes funds to eligible charitable organisations.
Prescribed private funds enable individuals and families to play an active role in deciding the direction of what is essentially their own charitable foundation. A prescribed private fund is easier to establish, manage and administer than a public foundation because there is no obligation to raise funds from the public.
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