Katherine incorporates philanthropy into her estate planning: a case study

The situation:

Katherine, aged 51, recently sold some investment properties for a $1,000,000 profit. The properties were regarded as trading stock. Already on the highest marginal tax rate of 46.5% including Medicare levy, the tax payable would be $465,000. Katherine may choose to pay this tax and invest the remaining $535,000 personally.

Katherine is a very strong supporter of disadvantaged children and constantly donates $20,600 per annum to related charities, meaning she would have effectively given $1 million in today’s dollars (discounted at the inflation rate of 3%) from now until age 100. The accumulated tax savings over the next 50 years from these donations would be valued at $465,000 in today’s dollars.

The solution:

Katherine wanted to continue to support disadvantaged children and sought the guidance of Alman Partners. After analyzing her financial position and understanding her goals, Alman Partners drafted a financial roadmap for Katherine. Below are some of its features:

• As Katherine had sufficient funds elsewhere to meet her expenditure needs, Alman Partners suggested establishing a Private Ancillary Fund (PAF) and donate $1 million today
• Receive a $1 million tax deduction for the donation. This will offset her $1 million assessable income and therefore save her $465,000 in tax this year
• Ability to donate upfront the $1 million that she intends to donate over her lifetime
• The donation goes into a tax-exempt environment and she can donate the income generated from this $1 million to the charities of her choice which have Deductible Gift Recipient status
• Katherine’s PAF can effectively donate on average $75,000 p.a. in real terms compared with $20,600 p.a*.

Life now:

Katherine is thrilled to be able to support her favourite charitable causes throughout her lifetime. As she says, “Thanks to the advice I received from Alman Partners, I can now give more than three times the amount than I originally would have been able to, to causes that are important to me”. Alman Partners will help you get your financial house in order and keep it that way for the rest of your life.

* Investment return of 4% income (re-invested after donation & tax) and 5% growth

^ Names have been changed to protect individual’s identity