Baby boomers are driving an increase in the establishment of private ancillary funds (PAFs) following liquidity events, according to national accounting and advisory firm William Buck.
Liquidity events are actions which generate a large amount of money such as a business sale, inheritance or chance event ie winning lotto.
PAFs are still relatively new in Australia with the first opening in late June 2001. According to the latest data from Australian Philanthropic Services there are currently 1,370 PAFs in Australia, with around 150 established annually.
Fausto Pastro, Director at William Buck comments, “In the past 12 months we have witnessed a spike in enquiries regarding the establishment of private ancillary funds. Baby boomers selling businesses have predominantly driven the enquiry. In many cases they are receiving large amounts of money (over $1 million) and are seeking a solution to provide an enduring benefit.
“PAFs are an interest area for baby boomers and an extension of their interests. They are a financial resource to make a difference to other people’s lives. Supporting educational institutions for young people both in Australia and overseas in third world countries such as Kenya and Nepal and under privileged (indigenous and minority groups) are focus areas for clients.”
According to Australian Philanthropic Services, distributions have exceeded $1.5 billion and continue to be well above the 5 per cent minimum payout rule averaging around nine percent since 2009.
Private ancillary funds are structures for strategic long-term giving that can offer donors (individuals, families or businesses) tax deductibility, flexibility, and deeper engagement in their charitable giving.
“Structured giving has the ability to allow individuals to support their nominated causes beyond their life expectancy, thus creating a legacy of giving. PAFs are deductible gift recipients meaning all gifts are tax deductible. Income and realised capital gains received by a PAF are also tax exempt. Expert tax, legal and financial advice is typically required for the establishment and ongoing management of a PAF,” Fausto continued.
“Additional benefits include gifts to the PAF can be in the form of cash, shares or physical goods such as real estate (stamp duty could occur with this donation), the income generated from a PAF is normally exempt from income tax, cash refunds are available from franking credits and trustees can control how the assets of the PAF are invested.”
“We are finding that increasingly PAFs are proving to be a valuable tool for intergenerational bonding to assist parents foster in their children their own philanthropic values and financial responsibilities. Even children under the age of 18 can be involved by providing their views on particular causes and visiting the projects they are supporting,” Fausto concluded.
