Trustee Companies and the Philanthropic Monies of Generous Dead People

The current reform of the Not for Profit sector is very welcome but, according to sector expert Elizabeth Cham, there is still a gaping hole in the regulatory framework that needs urgent attention – philanthropy.

After decades of inaction, four major reports and incessant demands from the Not for Profit sector, the Labor government is engaged in “root and branch” reform of the sector. These reforms include Australia’s first national regulator, the Australian Charities and Not-for-profits Commission (ACNC) and the introduction of a statutory definition of ‘charity’.

These reforms are very welcome but given the Government’s stated aim of improving “transparency and accountability”, there is still a gaping hole in the regulatory framework that needs urgent attention – philanthropy. So far the reforms have ignored philanthropy, particularly those charitable trusts and foundations, established in perpetuity by generous dead people and administered by trustee companies.

Trustee companies have played a significant role in philanthropy since the first one, was established 120 years ago. Until the deregulation of the Australian Financial Sector in the mid 1980’s, trustee companies – a uniquely Australian invention – were somewhat old fashioned entities, established by gentlemen for gentlemen. Their initial role was to manage the assets of wealthy individuals when they travelled abroad for often very lengthy periods. Later this was extended to manage deceased estates, some of which established perpetual charitable foundations. Trustee companies were seen as particularly suited for this because they had financial expertise and were perpetual organisations.

Today they manage over $3.3 billion of charitable monies and act as trustee (or co-trustee) for over 2,000 charitable trusts and foundations, including some PAFs. In 2009/2010 they distributed $180 million in grants.[1]

Surprisingly, at the beginning of the 21st Century, and after more than 100 years of organised Australian philanthropy, the only legal obligation upon philanthropic entities in Australia is to provide an audited annual report to the Taxation Office. This information is treated as private and confidential. There is no legal or regulatory requirement for Australia’s philanthropic trusts and foundations to issue a public report and only a sophisticated few do so.

Trustee companies are coy about providing much information on the charitable trusts and foundations they administer. Their web sites offer details about their business services and the financial advantages for potential philanthropists.

As a consequence, for the overwhelming majority of foundations they administer, we do not know:

Who they are
What they fund
How much they give
How they make funding decisions
The capital base of each foundation
The amount distributed to the community
The beneficiaries of these monies
The Trustees
How the Trustees are appointed
The original benefactor’s wishes.

This total lack of information is particularly concerning when trustee companies are negotiating with the Federal Government to alter the fee structure of perpetual charitable trusts.

Historically, they have been charged 5-6% of income, the potential new fee will be up to 1.056% of capital. The impact on a foundation with a capital base of $50 million will be a fee increase from $131,840 to $528,000 per year, every year. Another consequence of this could be a transfer, each year, of as much as $20 million from being distributed to NFPs in grants into additional administrative fees of trustee companies.

The public provide significant financial support to philanthropy through the tax system.[2]The current reform process provides an ideal opportunity to examine the workings of an influential and almost invisible and unaccountable part of our society. It is time for transparency and accountability.

Elizabeth Cham has worked in philanthropy for over two decades, including ten years as CEO of Philanthropy Australia. She is currently writing about philanthropy and the need for public accountability.

_______________________

[1] www.trustcorp.org.au Trustee Corporations Association of Australia (TCA) is the peak industry representative body, represents 16 trustee companies. On 1 March 2012 TCA became part of the Financial Services Council..
[2] Treasury figure 45 cents in each dollar donated. The Treasury, Improving the Integrity of Prescribed Private Funds, Discussion Paper, Canberra, November, 2008,p.5)