How to set up your own charity

How to set up your own charity

There are several clever ways to design your philanthropic activities, giving you peace of mind and a clear outcome.

When thinking about philanthropy, it’s useful to use the oxygen mask analogy: in the event of an emergency, make sure you have your own oxygen mask on before helping others.

Financial planning operates in a similar way; make sure you’re financially stable before you give back.

We say this, not to dissuade you from philanthropy, but because groups come to depend on continued financial support.

If you overstretch yourself, pulling funding may seriously damage what started as a well-meaning activity, so it pays to think carefully about how much you can comfortably commit.

That said, if you’ve determined you have enough money to cover any emergency expenses and can service any debt you have, starting up your own charity or establishing a charitable family foundation is a great way to spread wealth.

Across Australia, there are thousands of different charities and non-for-profits. Before you dive headlong in and set up your own, we recommend searching the Australian Charities and Not-for-profits Commission’s database to see if there’s a registered organisation you could support or work with.

Charities and NFP are often competing for grants and talent, so in the interests of efficiency, it pays to do some homework and explore whether you can support and existing organisation.

In Australia, there are some wonderful incentives and tax breaks for those who would like to siphon of a portion of their wealth for philanthropy.

The types of funds

There are three main legal structures for a charitable family foundation.

  • Private Ancillary Fund

PAFs were introduced to encourage systematic and engaged philanthropy.

This kind of fund allows you to receive a tax deduction for the money you invest into the foundation. It also gives you a say in the foundation’s investments and grant decisions.

In return for the tax deduction, the foundation is restricted to dealing with organisations endorsed by the Australian Tax Office. These organisations are called ‘deductible gift recipients’.

If you’re looking to set up a PAF, you can spread your tax deductible donations across your income in the year you set up the fund, and the subsequent four years.

These kinds of funds generally need a fair bit of startup capital, we recommend around $300,000, to make sure you can meet annual minimum distribution requirements and administration costs without eroding the capital base

  • A sub-fund within an existing Public Ancillary Fund

You can also set up a sub-fund under an existing Public Ancillary Fund (PUF). These are sometimes called ‘community foundations’.

A PUF means you relinquish control of the investment decisions, but you also don’t need to take care of any administrative responsibilities.

Instead, the money is invested in a managed fund which reflects the needs of philanthropic foundations and its goals.

These funds generally require less capital to get started as you’re contributing to an existing pool, rather than setting one up yourself.

  • Testamentary charitable trust

This method is established via your will.

You can set up a testamentary charitable trust to take effect after you pass away, with family members appointed to act as trustees or advisers and contribute to grant-making decisions.

Choosing your direction

Some of these options offer you the chance to direct where your investment is heading, so it pays to think about which sectors you understand well and want to contribute to.

Many funds hope to build close, powerful partnerships with their donors so it’s likely you’ll receive communications about their activities.

Philanthropy is a wonderful way to learn more about how capital is used to greatly improve the lives of those around us.

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