5 reasons to set up a Private Ancillary Fund (PAF)
When significant wealth is accumulated, it may open up opportunities for individuals and families to be able to support charitable causes that matter to them. Finding the most effective way to do this, to ensure that your money reaches those that need it, and goes as far as possible, can be tricky. Setting up a Private Ancillary Fund (PAF) may provide exactly the tool needed to create a lasting impact and family legacy.
What is a PAF?
Contributing to a worthy cause that you believe in, is a rewarding experience. A PAF is a type of charitable trust that is usually set up as a strategic and organised vehicle for family philanthropy. The purpose of the PAF is to direct gifts to other charities approved by the Australian Taxation Office (ATO) as deductible gift recipients (DGRs), without directly undertaking the philanthropic activity (e.g. providing crisis accommodation to those affected by bushfires/floods). Other characteristics of a PAF include having a trustee company; a responsible person, maintaining a current investment strategy and donating a minimum of 5% of the value of the net assets valued as at the previous reporting year-end.
Why set up a PAF?
- Financial benefits
A PAF provides the ability to direct investment returns and funds to a charitable cause close to the heart of the family. Donations to a PAF are also immediately tax deductible at the time of donation and those involved have the flexibility to donate the funds to the DGR charities of choice every year. If the PAF receives endorsement from the ATO for income tax concessions and DGR status, all income generated would be tax-free and all donations would be tax-deductible.
- Charitable benefits
As contributions are made over time and the PAF continues to grow in line with its investment strategy, this creates sustainable, long-term annual earnings that can provide charities with regular income. Instead of giving donations personally in an ad-hoc manner, the family are also able to plan for multi-year grants and redirect support depending on the circumstances.
- Legacy
Long after the lifetime of founding members, a PAF can continue to exist, creating an enduring legacy. Many families use this type of fund to instil the importance of giving into the next generation, often starting early with grandchildren, helping them understand their wealth and identifying their areas of interest. Having a PAF can inspire future generations and build a family legacy that all family members can share.
- Engage family members
The family tends to articulate and document the giving purpose and mission of the PAF during the start-up phase. This provides an opportunity to explore the values and interest of family members and brings families together to make joint decisions for the benefit of the community. Each family member can be as involved as they would like to be and make a greater impact on the charities/causes as a collective. Ensuring clarity of purpose also removes complexities around the long term strategy for the PAF and longevity for the charitable interests.
- Financial education
With a PAF, the family has control over all investment and grant making decisions. Moore Australia’s Family Office can assist with identifying purpose and values, preparing an investment strategy, gaining insight over various areas of interest as well as measure, record-keep and report the impact of giving. The family can use or pass on the same skills, philosophies and abilities that helped with building their wealth to the next generation and to have a lasting impact on the community.
Difference between Public (PuAF) and Private Ancillary Funds (PAF)
Private Ancillary Funds are not able to solicit donations from the public, however Public Ancillary Funds are able to do so.
More information
Providing the ability to collectively give to the community and grow your PAF, a PAF might be the right vehicle for you to meet your philanthropic goals. Please contact
Family Office at Moore Australia if you would like more information.