Charitable Trust or Foundation Decision Tool
Get Your Personalized Recommendation
Answer a few questions about your giving goals and circumstances to find which structure suits you best.
Your Recommendation
Recommended Structure
Key Advantages of Your Choice
- Setup Cost Low
- Compliance Minimal
- Control High
How This Matches Your Situation
| Factor | Charitable Trust | Foundation |
|---|---|---|
| Primary Goal | ✓ | ✗ |
| Assets | ✓ | ✗ |
| Annual Giving | ✓ | ✗ |
| Time Commitment | ✓ | ✗ |
| Control | ✓ | ✗ |
Choosing between a charitable trust and a foundation isn’t about which one sounds more impressive-it’s about which one actually works for your goals, your resources, and your long-term vision. Many people assume these terms are interchangeable, but they’re not. A charitable trust and a foundation operate under different rules, have different tax treatments, and serve different kinds of donors and beneficiaries. If you’re setting up a nonprofit to give back, understanding this difference could save you years of headaches-and maybe even thousands in legal fees.
What Is a Charitable Trust?
A charitable trust is a legal arrangement where a donor gives assets-like cash, property, or stocks-to a trustee who manages them for the benefit of a charity. The trust itself doesn’t have its own legal identity. Instead, it’s a contract between the donor, the trustee, and the charity. Think of it like handing over a sealed envelope to someone you trust, with instructions: ‘Use this to help kids in need.’
There are two main types: charitable remainder trusts and charitable lead trusts. In a charitable remainder trust, the donor (or someone they name) gets income from the trust for life or a set number of years. After that, whatever’s left goes to the charity. In a charitable lead trust, the charity gets income first, and the remainder goes back to the donor’s family or estate.
These are often used by people with significant assets who want to reduce estate taxes, avoid capital gains on appreciated property, and still support causes they care about. For example, someone in Sydney might transfer shares in a family business into a charitable remainder trust. They keep the income from those shares while they’re alive, and when they pass away, the shares go to a local youth shelter. The capital gains tax on those shares never gets triggered.
What Is a Foundation?
A foundation is a separate legal entity. It’s incorporated, has its own governing board, and operates like a company-but with a charitable purpose. Foundations can be public or private. A private foundation is usually funded by one person, family, or corporation. A public foundation raises money from many sources, like grants or donations from the public.
Unlike a trust, a foundation has to register with the government, file annual reports, and follow strict rules about how it spends money. In Australia, that means compliance with the Australian Charities and Not-for-profits Commission (ACNC). Private foundations must also meet the ‘deductible gift recipient’ (DGR) status requirements to allow donors to claim tax deductions.
Foundations are more flexible in how they operate. They can fund other nonprofits, run their own programs, hire staff, rent office space, and even invest in social enterprises. If you want to build a lasting legacy-like funding research into rare diseases or running a community arts center year after year-a foundation gives you the structure to do it.
Key Differences at a Glance
| Feature | Charitable Trust | Foundation |
|---|---|---|
| Legal Structure | Contract-based, no separate legal identity | Incorporated entity with legal personality |
| Setup Cost | Lower-usually under $5,000 | Higher-$10,000 to $25,000+ |
| Ongoing Compliance | Minimal-trustee reports annually | High-annual financial statements, ACNC reporting, governance audits |
| Control | Donor retains influence through trustee selection | Board controls operations; donor can be on board |
| Donor Tax Benefits | Immediate deduction for donated assets | Deduction available, but subject to annual limits |
| Best For | Donors with existing assets, tax reduction goals, simple giving | Long-term programs, hiring staff, running projects, building an organization |
When to Choose a Charitable Trust
You should consider a charitable trust if you’re looking for simplicity and tax efficiency. Say you’ve sold your family home in Melbourne and have $800,000 in proceeds. You want to give $500,000 to a local food bank but don’t want to pay capital gains tax on the sale. You set up a charitable remainder trust. You transfer the money into the trust, and the trustee invests it. You receive 5% annual income ($25,000) for the rest of your life. When you pass away, the remaining balance goes to the food bank. You get a tax deduction now, avoid capital gains, and still live off the income.
Charitable trusts are also great if you don’t want to manage a team or deal with bureaucracy. You pick a trustee-a bank, a lawyer, or a trusted friend-and they handle the rest. No annual reports to file. No board meetings. No staff to hire. Just money moving from one place to another, according to your wishes.
But here’s the catch: once you set it up, you can’t easily change your mind. The terms are binding. If the charity you chose shuts down, you’re stuck unless you planned for contingencies. That’s why legal advice is non-negotiable.
When to Choose a Foundation
Choose a foundation if you want to build something that lasts beyond your lifetime. Maybe you want to fund scholarships for Indigenous students in regional Queensland. Or support mental health services for veterans in Adelaide. Or start a community garden network across Tasmania.
A foundation lets you hire a program manager, create a website, run fundraising events, and even partner with universities. You can change your focus over time. If your initial grant program doesn’t work, you can pivot. If a new need emerges-like bushfire relief-you can respond quickly. A foundation gives you control and flexibility.
But that flexibility comes at a cost. You’ll need a board of at least three people (in Australia), regular meetings, financial audits, and compliance with ACNC standards. You’ll spend time on paperwork, not just giving. And if you’re not prepared for that, you’ll burn out-or worse, risk losing your DGR status.
Private foundations in Australia must distribute at least 4% of their net investment assets each year. That’s a rule you can’t ignore. If you set up a $2 million foundation, you need to give away $80,000 annually-even if you’d rather save it for next year.
What Most People Get Wrong
The biggest mistake people make is assuming they need to pick one and stick with it forever. You don’t. Many donors start with a charitable trust to get tax benefits quickly, then later create a foundation to build a more permanent legacy. Others use a foundation to fund a trust. It’s not either/or-it’s often both.
Another myth: ‘A foundation is more prestigious.’ Not true. A trust can be just as impactful. What matters is how much good you do, not the legal paperwork behind it.
And don’t assume bigger is better. A $100,000 trust giving $5,000 a year to a local animal shelter can change lives just as much as a $5 million foundation with a 10-person staff. Impact isn’t measured in budget size-it’s measured in outcomes.
What You Need to Do Next
If you’re serious about setting up a charitable structure, here’s what to do:
- Define your goal: Are you giving a lump sum? Creating ongoing income? Building an organization?
- Assess your assets: Do you have cash, property, shares? How much can you afford to give now?
- Talk to a lawyer who specializes in charitable giving: Not just any lawyer-someone who knows ACNC rules and tax law.
- Choose your trustee or board: Pick people who care, not just people who are available.
- Plan for the long term: What happens if the charity closes? Who takes over if you pass away?
Don’t rush this. Take six months to think it through. Talk to other donors. Visit the organizations you want to support. See how they operate. The right structure won’t feel obvious at first-it’ll feel right.
Final Thought: It’s Not About the Label
At the end of the day, whether it’s called a trust or a foundation doesn’t matter to the people you’re helping. A child in a remote town doesn’t care if the money came from a trust deed or a board resolution. They care that someone cared enough to act.
So don’t get lost in the legal jargon. Focus on your purpose. Choose the structure that lets you give the most, with the least friction. And remember: the best charity isn’t the one with the fanciest name-it’s the one that keeps showing up.
Can a charitable trust be converted into a foundation later?
Yes, it’s possible, but it’s not automatic. You’d need to dissolve the trust and set up a new incorporated foundation. This requires legal work, approval from the ACNC, and potentially tax implications. Many donors choose to keep both structures running in parallel instead-using the trust for immediate giving and the foundation for long-term programs.
Do I need to be rich to set up a charitable trust or foundation?
No. While trusts and foundations are often associated with large donations, even modest assets can work. A trust can be set up with as little as $50,000 if the goal is to give $5,000 a year to a local cause. Foundations are more expensive to run, but community foundations exist that pool small donations from many people-so you don’t need to fund it alone.
Can I be the trustee and the founder of a foundation?
You can be the founder and sit on the board of a foundation, but you can’t be the sole trustee. Australian law requires foundations to have a board of at least three people to prevent conflicts of interest. For a trust, you can name yourself as trustee, but it’s risky. If you’re the only one controlling the money, it could be seen as a personal asset, not a charitable one. Always appoint an independent trustee.
Are charitable trusts and foundations tax-deductible in Australia?
Yes-if the charity you’re giving to has DGR status. Donations to DGR-registered charities are tax-deductible for individuals and companies. For trusts, the deduction happens when assets are transferred. For foundations, donations made by the foundation to DGRs are deductible. But the foundation itself doesn’t get a tax deduction for its own setup costs.
What happens if the charity I’m supporting shuts down?
If you set up a trust, the trust deed should include a ‘cy-près’ clause-that means if the original charity can’t operate, the trustee can redirect funds to a similar cause. Foundations have more flexibility; their board can change beneficiaries. But without clear instructions, you risk legal disputes. Always plan for failure, not just success.
Can I use a foundation to pay my family members?
You can pay family members for legitimate work-like accounting, program management, or legal advice-but only at market rates. The ACNC strictly prohibits self-dealing or excessive compensation. If your daughter is paid $150,000 a year to run a $200,000 foundation, auditors will question it. Keep it transparent, keep it fair, and document everything.
Next Steps for Donors
If you’re still unsure, start small. Donate to a charity that already has a trust or foundation structure. See how they manage their funds. Talk to their staff. Ask how they make decisions. Then come back to your own plan.
There’s no perfect structure. Only the right one-for you, for your values, and for the people you want to help.