Social Responsibility, giving and the laws of inheritance in Australia

| October 19, 2015

A large part of the giving that sustains not-for-profit organisations in Australia comes from bequests. David Coleman says this is why estate laws have a large impact on our capacity to implement socially responsible activities. 

Social Responsibility is a notoriously difficult concept to precisely define. Commonly people think of corporate social responsibility and the “PPP” mantra of people, planet, profit or more recently the “PPPF” mantra which includes future generations as a consideration in establishing what an ethical course of action is to take for a corporation.

Corporations do fund many not-for-profit organisations and in some cases government projects that would not receive any other funding and have a socially responsible character. However, the notion of corporate social responsibility misses a large part of the giving that sustains many not-for-profit organisations in Australia and therefore contributes to the implementation of social responsible activity. The source of this giving is from bequests from estates.

A major source of funding for not-for-profit organisations are bequests from estates. It is estimated by the Australian Bureau of Statistics that during the 2012-13 financial year, donations, bequests and legacies from households to not for profit organisations in Australia amounted to approximately AUD $4 billion.  Broadly, the types of organisations that receive bequest funding are grouped into social services, education, culture, health, environment, religious organisations and trade unions. Australia’s estate laws, therefore, have a large impact on the country’s capacity to implement socially responsible activities.

Unlike the United Kingdom and some other developed economies, Australia abolished estate taxes in the late 1980s as a result of a sustained community campaign against the tax. However, in some cases capital gains tax is still applicable to the assets of an estate. This has been characterised by some as a form of estate tax. Before the abolition of estate taxes, it was more likely for people to give away their wealth prior to their death in order to minimise the application of the tax.

Also, it is a little known fact that the person making a will is not completely free to give away their estate in whatever way they wish. There are a number of parameters which govern the validity of wills and represent some degree of restriction on people’s testamentary freedom. In every state of Australia we have family provision legislation which binds testators to make adequate provision for their family members in their wills. Originally, this was introduced as a method of reducing the load on the fledgling social security system. It has remained a central consideration in the administration of Australian estates law ever since it was introduced. It is often used to challenge bequests to charities in wills, and many not-for-profit organisations that receive bequests must now consider whether the estate that provided the bequest has made adequate provision for the family members of the deceased person.

Some people are also not aware of the equitable rule against perpetuities. A will is essentially a trust in favour of a group of beneficiaries and there is a common law rule that a trust must not last longer than 21 years after the death of the person that created it unless the trust is for a charitable purpose. It exists to prevent individuals from controlling beneficiaries of their estate from the grave for an indeterminate length of time. This rule has also been modified by various state laws within Australia but it remains a consideration in estate planning where the testator has not been sufficiently clear about what purpose the trust in their will is established for. If the trust fails as a charitable trust, it can be dismantled under the rule against perpetuities and the alternative beneficiaries then receive the estate’s bounty.

For these reasons, not-for-profit organisations need to exercise caution when in receipt of bequests from wills, and in order to guarantee the continued implementation of socially responsible activity, reforms of the laws of wills and estates may need to be considered.

0 Comments

  1. marrywilliams

    October 26, 2015 at 9:25 am

    That’s the biggest

    That's the biggest responsibility of the law…

    • Cathia

      October 30, 2015 at 6:55 pm

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  2. Russell Lee

    October 29, 2015 at 3:13 pm

    Estate taxing necessary.

    Hello, with the current system of monetarism, the past fortunes can continue to build and build until there is no longer any possibility for the public to gain in prosperity themselves, everything is owned and franchised by the 'old' money. Not just estates should be taxed, but incomes over a certain amount per year, for the same reasons – they can reach a point of self-perpetuation and then creat the vast wealth (and the power that comes with it), to lock the people out of the club. The current Secretary of State in the United States owes all of his position to his wife's wealth, that was created in her family's past when they became wealthy by making ketchup. Ketchup success has led to governmental position and power! This is the deadly consequence of the invention of 'money' and the 'assigned money value for everything' system called monetarism.

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