Fees for administration of charitable trusts
Setting Fees for Applications to the
Attorney-General to Assist the
Administration of Charitable Trusts
Regulatory Impact Statement
October 2005
This report was prepared by the Department of Justice
and Alan Moran & Associates.
Fees to assist administration of charitable trusts
© State of Victoria, Department of Justice 2005
This publication is copyright. No part may be reproduced by any process except in accordance with
the provisions of the Copyright Act 1986.
This regulatory impact statement was prepared for the Department of Justice by Alan Moran &
Associates in conjunction with officers from the Department of Justice.
Disclaimer: This publication may be of assistance to you, but the State of Victoria and its employees
do not guarantee that the publication is without flaw or is wholly appropriate for your particular
purposes and therefore disclaims all liability for any error, loss or other consequence that may arise
from you relying on any information in this publication.
Fees to assist administration of charitable trusts
PROPOSED CHARITIES REGULATIONS 2005
Regulatory Impact Statement
This Regulatory Impact Statement (RIS) has been prepared to fulfil the
requirements of the Subordinate Legislation Act 1994 and to facilitate public
consultation on the proposed Charities Regulations 2005. A copy of the proposed
regulations is provided as an attachment to this RIS.
Public comments and submissions are invited on the proposed regulations, in
response to information provided in this RIS. All submissions will be treated as
public documents. Written comments and submissions should be forwarded no later
than 11 November 2005 to:
Naomi Smith
Civil Law Policy
Department of Justice
Level 4
55 St Andrews Place
MELBOURNE VIC 3002
Fees to assist administration of charitable trusts
Table of Contents
Executive Summary ...............................................................................................1
1.
Background ...................................................................................................4
The notion of charitable trusts....................................................................................................... 4
“Saving” charitable trusts from failure ........................................................................................... 4
Improving the efficiency of charitable trusts .................................................................................. 5
2.
Objectives: addressing the issue ................................................................6
Cost effective ways of modifying charitable trusts ........................................................................ 6
The proposed fee level ................................................................................................................. 7
3.
Proposal description.....................................................................................8
How the procedure is to operate in practice.................................................................................. 8
The fee measures proposed ......................................................................................................... 8
4.
Costs and benefits of the proposal ...........................................................10
The likely costs ........................................................................................................................... 10
Likely size of the anticipated benefits ......................................................................................... 10
Groups most affected.................................................................................................................. 11
5.
6.
7.
8.
9.
10.
11.
Impact on small business...........................................................................13
Assessment of competition impacts.........................................................13
Assessment against alternative options...................................................13
Evaluation strategy .....................................................................................16
Consultation ................................................................................................16
Appendix .....................................................................................................19
Copy of proposed regulations ..................................................................20
Fees to assist administration of charitable trusts
Executive Summary
Charitable Trusts
Trustees administering charitable trusts often face two particular difficulties – firstly,
changes in circumstances that make it impossible, or at least very difficult to carry out the
purposes of the trust and secondly, inefficiencies caused by the rule that prevents trustees
combining the funds of two or more trusts in a common investment fund.
Cases where it is impossible or difficult to carry out the purposes of the trust are assisted
by the Charities Act 1978, which provides a procedure for the review of outdated trusts by
the Supreme Court, or in the case of smaller trusts, the Attorney-General. A scheme (cy
pres) can be approved for the variation of a trust that has become impossible or very
difficult to carry out. A variation provides for the trust property to be applied to a charitable
purpose which fulfils as nearly as possible the charitable intent of the donor.
For smaller trusts, the costs associated with a cy pres application to the Supreme Court
could significantly deplete the value of the trust. Applications to the Attorney-General
provide a simpler process currently. However the Attorney-General can only deal with
trusts with a corpus of less than $50,000, under the Charities Act 1978. No ability currently
exists for trustees to apply to the Attorney-General for approval to combine the funds of
two or more trusts in a common investment fund.
To address these difficulties faced by trustees administering charitable trusts, Parliament
enacted the Charities (Amendment) Act 2005 (‘the Amendment Act’) which:
¾
Increases the limits for cy pres applications to the Attorney-General from $50,000
to $500,000; and
¾
Provides for applications to be made to the Attorney-General for the approval of
schemes for investment in common funds.
The Charities Act 1978 provides for regulations to be made prescribing fees for
applications made under the Act. The changes made by the Amendment Act will come
into operation on 30 November 2005.
Objectives of the proposed measure
This RIS seeks authority to set fees to allow appropriate cost recovery for implementing the
changes made by the Amendment Act. While fee setting is in accordance with general
government requirements on cost recovery, the proposed fees are not intended to achieve
full cost recovery. This is in recognition of the role of the Attorney-General as guardian of
the public interest in relation to charitable trusts.
Agreement to the fees is necessary to enable the Amendment Act to be implemented as
intended. As the Victorian Government Solicitors Office (VGSO) will advise the AttorneyGeneral on both cy pres and common investment fund applications, the fees are based on
the legal costs established under the Government Legal Services rate.
Costs and benefits
Two sets of fees are proposed. One set of fees will apply to cy pres applications made to
the Attorney-General. Under the proposal, fees will be waived for cy pres applications
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Fees to assist administration of charitable trusts
covering trusts valued at less than $25,000 as a fee could significantly deplete the funds
held by the trust. This proposal is consistent with the Attorney-General’s role as protector
of charities. For charitable trusts between $25,000 but less than $500,000, the fees will
range from $300 to $1,500.
The proposed fees that will be incurred by charitable trusts are considerably lower than the
costs that would be incurred if cy pres applications were to proceed through the Supreme
Court or if a Private Bill were to be introduced in Parliament.
The benefits of this proposal in supporting the operation of the charitable trusts in Victoria
are:
-
an increase in the opportunities for the available amount of charitable funds for the
community where the trust would otherwise fail;
the more efficient deployment of funds made possible by a redirection of the trust’s
purpose to benefit other groups; and
the lower costs of changing the administrative provisions through the AttorneyGeneral compared to seeking such a change before the Supreme Court.
The second type of fees will apply to common investment fund applications made to the
Attorney-General. Fees in this category range from $1,000 to $2,250 depending on the
value of the corpus of the charitable trust.
The benefits of this proposal in supporting the operation of the charitable trusts in Victoria
are:
-
an administrative cost saving by allowing investments in a common fund; and
improved investment opportunities for those funds.
Options
As stated previously, no fees will be charged for cy pres applications to the AttorneyGeneral where the value of the trust is less than $25,000. A number of options have been
considered for cy pres applications greater than $25,000 and applications for the
establishment of common investment fund applications:
Option 1 - Charging no fees;
Option 2 - Charging on the basis of costs actually incurred;
Option 3 - Charging a single flat fee; and
Option 4 - Setting a schedule of fees (preferred option).
Evaluation of the above options is addressed in section 7 of this report. Charging no fees
would be inconsistent with the Government’s cost recovery principles. The preferred
option is to charge on the basis of a fee which is judged to adequately cover costs, taking
account of the varying values of charitable trusts. This is considered a more efficient
solution than charging a flat fee and to offer trusts cost certainty in contrast to charging the
fee on the basis of costs actually incurred by the Attorney-General.
Recommendation
That the fee levels discussed and set out in the tables below and sections 10 and 11 be
agreed.
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Fees to assist administration of charitable trusts
Fees for application of property cy pres
Value
Fees
Less than $25,000
$0
$25,000-$49,999
$300
$50,000 - $99,999
$500
$100,000 - $149,999
$750
$150,000 - $199,999
$1000
$200,000 - $249,999
$1250
$250,000 - $499,999
$1500
Fees for application of investment in Common Funds
Value
Fees
Less than $50,000
$1000
$50,000 - $99,999
$1250
$100,000 - $149,999
$1500
$150,000 - $199,999
$1750
$200,000 - $249,999
$2000
$250,000 – 499,999
$2250
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Fees to assist administration of charitable trusts
1. Background
Key points
•
Many charitable trusts cannot distribute their funds in the way the benefactor
intended because the purpose of the trust becomes impossible or impracticable
to fulfill.
•
The costs of cy pres applications to the Supreme Court or progressing a Private
Bill cannot be accommodated by many smaller trusts. In recognition of this, the
Charities Act 1978 provides for a simplified process of application to the
Attorney-General. The Charities (Amendment) Act 2005 (the Amendment Act)
increased the size of trusts eligible for this process from $50,000 to $500,000.
•
A separate issue concerns the significant cost of separately managing many
charitable trusts the funds of which cannot be combined with other investments
and managed in a common fund. Schemes for permitting this may now be
approved by the Attorney-General under the Amendment Act.
•
Parliament has passed the Amendment Act endorsing these changes and this
RIS seeks authority to set fees to allow appropriate cost recovery for
implementing them. The proposals in the Amendment Act received bi-partisan
support.
The notion of charitable trusts
Charitable trusts are an exception to our common law tradition that requires that trusts
have beneficiaries. The Attorney-General who is recognised as the guardian of the public
interest and represents the Crown, takes on the role of the protector of a charitable trust
analogous to that of the beneficiary of a non-charitable trust.
In its 1989 Report on the law relating to charitable trusts, the Parliamentary Legal and
Constitutional Committee (LCC) estimated that about 80% of Australia’s charitable trusts
were based in Victoria. Many of these were established for religious purposes, others to
advance education and some were to relieve poverty or for general benevolent purposes.
“Saving” charitable trusts from failure
Unlike other trusts, charitable trusts are exempt from the rule against perpetual duration.
Thus, the risk, over time, of the purpose/s of the trusts failing or becoming obsolete or
impracticable is considerably higher. The trust may even fail because of the initial
impossibility of the particular purpose. As the Attorney-General commented in his second
reading speech for the Amendment Act, “In the course of time, some trusts become
impossible to carry out because of changes in circumstances since the creation of the trust
-- for instance, a trust for the relief of widows of coalminers, or for the institutional care of
children, or for a scholarship for a boarder at a school that no longer provides boarding
facilities, or for the building of a church in a place where a church is no longer needed.”
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Fees to assist administration of charitable trusts
There is a growing need to allow charitable trusts to have their original purposes varied in
order to preserve their continuity. The original goals of the testator/testatrix or other
benefactor often become irrelevant as society and its component parts change.
To save these trusts, in Australia and other common law countries, variations of the
charitable trusts’ original purposes are allowed through “cy pres” schemes under which
changes are made "as closely to the donor's intention as possible," so that the trust does
not fail. The cy pres doctrine reflects, on the one hand, respect for the settlor/testator’s
wishes and right to ‘control’ his/her property, and on the other, the interests of the
community and the efficient administration of such trusts.
The Supreme Court has inherent jurisdiction over all trust matters including cy pres
schemes. However, the market cannot provide an efficient resolution for smaller trusts
because it would require an expensive legal procedure which would undermine the trust’s
value. Without some government action, the outcome will be charitable trusts which simply
see their assets exhausted in legal and other administrative fees.
Thus the Charities Act 1978, liberalised the stringent requirements of the cy pres doctrine
and introduced a simple procedure for cy pres schemes with low monetary values. Within
the limits set in the Act, the Attorney-General is given the adjudicatory role to approve cy
pres schemes.
The jurisdiction of the Attorney-General under the Charities Act 1978 was limited,
originally, to $25,000 and increased to $50,000 in 1986 ($98,000 in 2005 money).
Subsequently, submissions to the 1989 LCC review favoured extending the jurisdiction and
the Committee recommended a ceiling of $200,000, roughly $400,000 in today’s money.
The general notion of raising the limit was not politically controversial during the course of
the 1989 LCC inquiry and the LCC final report had bi-partisan support. Submissions to the
LCC floated a number of other figures ranging from $100,000 ($196,000 in 2005 money
equivalent) by the Victorian Community Foundation and the ANZ Executors and Trusts to
$250,000 ($490,000 in 2005 money equivalent) by the Law Institute of Victoria.
The Amendment Act raises the present $50,000 limit to an indexed $500,000 and was
passed with bi-partisan support by Parliament.
Around 10 charitable trusts (under $50,000) per year are processed under the existing
provisions that invest the Attorney-General with jurisdiction. A similar number are
processed through the Supreme Court. A little over half (6-7 per year) of those presently
proceeding through the Supreme Court would fall in the $50,000 to $500,000 category.
There is anecdotal evidence that the high cost of applying to the Supreme Court is
presently deterring trustees from taking action for cy pres schemes. When the Amendment
Act comes into force, many more trustees are expected to make use of these applications
to save a failing trust.
Improving the efficiency of charitable trusts
The second part of the Amendment Act overcomes the limitations of the present common
law rule that prevents trustees from combining the funds of two or more trusts in a common
investment fund. This rule results in higher administrative costs where separate
administration is required of trust funds. There is little reason for such costs to continue to
be incurred in a modern economy which makes considerable use of arms-length
management of monies not only in banks but also in superannuation funds and other
financial institutions. In addition, it is expected that the combined trust will have a greater
range of investment options, thereby improving the returns earned by the trust.
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Fees to assist administration of charitable trusts
2. Objectives: addressing the
issue
Key points
Fees must be set to cover an appropriate level of the costs incurred by the AttorneyGeneral in considering applications under the Amendment Act:
•
providing a cost-effective way of varying the purposes of charitable trusts when
it is no longer possible or practicable to continue to apply the trust according to
the benefactor’s original intent; and
•
allowing trustees of charitable trusts to invest trust moneys in a common fund.
Cost effective ways of modifying charitable trusts
The need for the proposed changes stem from the inflexibility of charitable trusts when
they were originally formed. Most trusts today would not be drawn up so rigidly but there
are a great many trusts in existence which require change along the lines allowed by the
Amendment Act.
At present there are three means of effecting a cy pres change:
•
Applying to the Attorney-General under the Charities Act 1978, where the trust
fund is under $50,000;
•
Applying to the Supreme Court; and
•
Introducing a Private Bill into the Parliament.
It is an extension of the first approach that forms the purpose of this RIS.
alternative methods can be expensive, particularly for smaller trusts.
Both the
Applications to the Attorney-General
Currently where the corpus of the trust is under $50,000 the costs for the applicant would
be those costs in deciding if there was a need for a cy pres scheme and those costs in
making an application to the Attorney-General. There is no set application form. The usual
process involves a letter which includes relevant documentation as well as a statutory
declaration deposing to the facts. The cost to the Attorney-General are those costs of
obtaining advice from the VGSO.
Applications to the Supreme Court
The costs of bringing a matter before the Supreme Court would entail legal and court costs
of several thousands of dollars. In addition, further costs are incurred by the taxpayer
because as a matter of government policy, courts do not recover all their expenditures from
fees.
Compared with applying to the Attorney-General through the Charities Act, (currently
available only to trusts valued at under $50,000) making a cy pres application through the
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Fees to assist administration of charitable trusts
Supreme Court, even if the matter is simple and uncontested comprises the following
additional costs:
•
•
•
•
Application fee $642.50
Affidavits, at least $300
Briefing counsel/solicitor, at least $1,500
General instructions to lawyers at least $1,500.
These costs are additional to the costs of the applicant in deciding whether there is a need
for a cy pres scheme. It is assumed that these pre-decision costs are the same whether
the cy pres decision can be made by the Attorney-General or the Supreme Court.
The above costs are also in addition to the Attorney-General’s in relation to cy pres
applications. Charitable trusts that have more complex issues are likely to incur costs
considerably greater than the minimum $4,000 for more straightforward cases.
Private Bills
A Private Bill also includes some costs that are picked up by the taxpayer. In addition, at
the very least, it involves considerable delay due to Parliamentary congestion and the
priority necessarily given to government business. Unless the House dispenses with fees,
the promoter of a Private Bill must pay to the Department of the Legislative Assembly:
(1) A deposit of $1,000 before the bill is read a second time; and
(2) An amount, less the deposit, to reimburse all expenses involved in the preparation and
passage of the bill, including costs of:
(a) drafting and printing;
(b) circulation and advertising;
(c) any select committee appointed to consider it
In real terms a Private Bill is likely to be even more costly than approaching the Supreme
Court.
Raising the monetary ceiling for the simplified cy pres application procedure to the
Attorney-General offers many more trusts a solution at costs that are a fraction of those
stemming from the more formal court and parliamentary approaches. It provides a lowercost means of allowing a benefactor’s wishes to be met as near as is possible in the light of
changed circumstances.
Allowing a variation so that trusts can invest in commonly managed funds is similarly
designed to reduce administrative costs.
The proposed fee level
It is general government policy for appropriate cost recovery for all administrative functions
that have specific beneficiaries. The proposed fees aim to recover an appropriate level of
the Attorney-General’s costs in accordance with the Attorney-General’s unique role as
protector of charities.
Consultation with the majority (VGSO estimate 80%) of those affected (via their solicitors)
has already taken place in establishing the proposed fees.
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Fees to assist administration of charitable trusts
3. Proposal description
Key points
•
Charge fees to cover an appropriate level of the Attorney-General’s costs of
approving a cy pres application (variation of a trust’s purpose as near as
practicable to the original intent of the benefactor).
•
Charge fees to cover an appropriate level of the Attorney-General’s costs to
approve schemes to allow trustees of charitable trusts to combine the funds of
two or more trusts in a common investment fund.
How the procedure is to operate in practice
In carrying out their duty as trustees, charitable trustees determine that the purpose of a
trust has become impossible or impracticable; they then approach the VGSO, in its
capacity as advisor to the Attorney-General and the VGSO would offer advice on how the
purpose might be varied to enable trust funds to be applied in the community.
The application would be developed by the trustees in consultation with the VGSO. This
presently occurs with trusts of a value of less than $50,000. This procedure will operate in
a similar manner for applications to combine the funds of two or more trusts in a common
investment fund.
For historical reasons, Victoria has a far greater need for cy pres schemes and common
fund approvals than other Australian jurisdictions. While other Australian jurisdictions have
comparable cy pres schemes none have comparable fee schemes.
The fee measures proposed
Legal fees charged by the VGSO are set having regard to the rates set under the
Government Legal Services contract (see the table below). The fees set are designed to
recoup the estimated costs incurred by the VGSO in advising the Attorney-General. The
individual rates for each panel member are commercial in confidence and are only known
to the Government Legal Service (GLS) unit and the contract managers in each
Department. The VGSO, like all firms on the GLS panel, maintains detailed time recording
for all work done on a file. Each file would indicate the work undertaken, for example,
perusal of documents, telephone calls, drafting documents, drafting advice to the AttorneyGeneral and so on. The amount charged would depend on the work required to be
completed and the seniority of the solicitor undertaking the work. As with commercial
solicitors, the VGSO itemises time units in minutes. Each solicitor has a rate on which,
together with the time logged on each individual case largely determines the costs
involved.
The table below sets out indicative hourly rates contained in the Request for Tender for the
GLS contract (released 17 August 2005).
8
Fees to assist administration of charitable trusts
Standard hourly rates (GST Exclusive)
Standard Hourly
Resource Type
Rates
Partner
$371
Senior Associate
$313
Fifth Year Solicitor
$275
Fourth Year Solicitor
$242
Third Year Solicitor
$218
Second Year Solicitor
$201
First Year Solicitor
$182
Articled Clerk
$114
A sliding scale set of fees based on the estimated costs has been developed based on the
VGSO’s long experience in handling cy pres schemes both before the Supreme Court and
in advising the Attorney-General on cy pres schemes that fall under the value thresholds in
place under the Charities Act.
Currently common investment funds are not allowed other than by statute. As such, there
is no VGSO history of handling these matters to guide the setting of a fee. Therefore, the
proposed fee for common investment fund applications has been devised by taking into
account the anticipated complexity of these applications.
For example, an application for a common investment fund will involve the following
complexities:
•
Examining several independent trusts (for example, one anticipated application
from a private school will involve more than 40 separate trusts);
•
Establishing these independent trust purposes including any restrictions on
investment; and
•
Assessing the appropriateness of combining the trust funds into one common fund
and establishing governance arrangements.
The proposed fee scale is found at the Appendix, Section 10.
As previously noted, while the fee setting is in accordance with general government
requirements on cost recovery, the proposed fees are not seeking to achieve full cost
recovery. To illustrate the low nature of the proposed fees it is useful to set out some
examples that illustrate current solicitor costs in cy pres matters.
•
Currently, advice to the Attorney-General on a trust under $50,000 may involve
between 3 - 6 billable hours for the solicitor (i.e. total cost of between $1113 and
$2226).
•
Currently, a Supreme Court proceeding (i.e. trust over $50,000) may involve
between 10 - 30 billable hours for the VGSO solicitor acting for the AttorneyGeneral (i.e. total cost of between $3710 and $11,130).
[Note the rates used in the examples are for a partner, and would be lower for a
senior associate. The charge-out rates for a partner have been used as it is usual
for an experienced solicitor to be involved due to the complexities of this area of
law. For example, in the VGSO’s experience the solicitors acting for trustees are
senior partners in private law firms.]
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Fees to assist administration of charitable trusts
4. Costs and benefits of the
proposal
Key points
•
Proposed fees aim to recover an appropriate level of the Attorney-General’s
costs; these are likely to be modest compared to the costs of alternative
avenues to change a trust’s terms.
•
Benefits include lower costs to trusts that need to be changed because their
purposes cannot be met. The measures also provide lower costs and greater
flexibility to trusts where the trustee wishes to use a commonly managed fund.
The likely costs
The proposed fee is to range from $300 to $1,500 for cy pres applications and $1,000 to
$2,250 for applications for investment in common funds depending on the size of the trust.
The average for cy pres applications is assumed to be $900 and for common investment
applications $1,600. The proposed fee for cy pres modifications will not apply to trusts with
a value below $25,000.
Overall, based on an assumed $900 average fee if an additional 10 cy pres schemes per
year are addressed the revenue (and therefore the costs incurred by the newly eligible
charitable trusts) will amount to approximately $9,000 per year. Offsetting this would be
other legal costs incurred by the trust fund to other lawyers and to the VGSO in the course
of processing the application through the Supreme Court.
In the case of applications to invest in common funds, there is no benchmark on which to
judge how popular this liberalisation of trust administration will prove to be. Hence, the
overall costs cannot be estimated.
Importantly, both the provisions are intended to bring cost reductions by providing
improved avenues for changing trust deeds.
Likely size of the anticipated benefits
Benefits of proceeding under the Charities Act
The simplified procedure for cy pres applications prescribed under the Charities Act
addresses the following, essentially practical, problems:
-
-
Applications for cy pres schemes are often costly; an application to the Supreme
Court requiring elaborate drafting and documentation which need the skills of legal
counsel. The drafting and settling of the documents can be long and drawn out.
Legal costs borne by the trust fund could significantly deplete the corpus of trust
property particularly for smaller trusts.
Considerable delays in the distribution of income as a result of the above
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Fees to assist administration of charitable trusts
Benefits of the common investment fund application process include a lower cost of
administration and improved investment options available to charitable trustees.
Benefits of the proposal
In addressing these issues, the benefits supporting the changes made by the Amendment
Act itself are:
-
-
an increase in the opportunities for the available amount of charitable funds where
the trust would otherwise fail;
the more efficient deployment of funds made possible by a redirection of the trust’s
purpose to benefit other groups;
the lower costs of changing the administrative provisions through the AttorneyGeneral compared to seeking such a change before the Supreme Court;
an administrative cost saving by allowing investments in a common fund (the
trustees are permitted to deduct up to 5 per cent of the annual income from a
common fund as commission for administration of the trust); and
improved investment opportunities for those funds.
While it is not possible to produce definitive figures for future applications, it is nevertheless
possible to say that if there were ten new cases of charitable trusts having their purposes
varied in the $50,000-$500,000 category with an average value of $200,000 and an
average distribution of $6,000 each year we are likely to see a cumulative $60,000 spent
on charitable deeds than might otherwise have been the case. By year ten this would be
$600,000 per year. On the assumptions used, this is a conservative estimate and
distributions are likely to exceed the average of $6,000 per annum.
If each of those cases proceeded to apply for a cy pres scheme through the Supreme
Court, the cost would have been an average of, say, $12,000 compared to the cost of $900
under the Amendment Act’s provisions. Annual savings, mainly to the charitable funds at
10 cases per year would be over $100,000. In net present value terms at a 5 per cent real
discount factor, this represents a gain of $772,000 over 10 years. These estimates are
conservative because we expect additional cases to emerge, over and above the historical
average, once the lower cost alternative is in place.
Applicants will make administrative savings from the ability to invest in a common fund but
we have no way of estimating these. It is also difficult to compare the full compliance costs
to the applicant (i.e. time to fill out forms/ attend meetings etc) in applying to the AttorneyGeneral for a cy pres scheme versus an application to the Supreme Court. However, in all
cases the trustees would not take the course opened to them if they saw no net benefit
from the Amendments.
The benefits of the fee structure suggested are that it takes into account the size of the
applicant trust and size is often, though by no means invariably, related to complexity. In
addition, in recognition of the Attorney-General’s role as protector of trusts, there is a nil
charge to be made for trusts with a value below $25,000. This is a “public good” measure
designed to prevent the value of a charitable trust from being eroded.
Groups most affected
The beneficial purposes of charitable trusts are to advance religion, education, alleviate
poverty and promote health. Those who benefit from charitable trusts are, by definition,
those who are less well off in the community or others determined by the benefactor to be
deserving. Where a trust’s purposes can no longer be carried out it is failing. A cy pres
scheme rectifies this to restore support to those who are as close as possible to the
originally targeted beneficiaries. Without such a change the groups favoured by the
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Fees to assist administration of charitable trusts
benefactor would not benefit. Similarly, if the investment has to be managed in a way now
considered to be inflexible and inefficient, without the proposal to allow investment in a
common fund, there will be reduced distributions available to the target beneficiaries.
12
Fees to assist administration of charitable trusts
5. Impact on small business
Key points
•
No effects on small business
6. Assessment of competition
impacts
Key points
•
No effect on competition.
7. Assessment against
alternative options
Key point
•
The options involve different means of charging. Any fee scale involves
arbitrary decisions since the complexity of individual applications will vary
considerably. Normally, the lower valued trusts are less complex and the
suggested fee scale reflects this.
No fees will be charged for cy pres applications to the Attorney-General where the value of
the trust is less than $25,000. For charitable trusts with a value of more than $25,000, a
number of options outlined below have been considered. The same options have also
been considered for common investment fund applications
Option 1 - Charging no fees
Option 2 - Charging on the basis of costs actually incurred
Option 3 - Charging a single flat fee; or
Option 4 - Setting a schedule as recommended
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Fees to assist administration of charitable trusts
Option One: Charging no fees
Not charging is not recommended as it would not meet the government’s policy of cost
recovery.
Option Two: Charging on the basis of costs actually incurred
Charging on the basis of costs actually incurred by the VGSO has certain attractions. It is
fully cost reflective and entails no cross subsidy between different applicants.
Such a procedure is used in some other situations where government bodies offer services
to private users. For example Austrade charges fees to exporters based on the costs
actually incurred for the services it provides in researching markets and facilitating
contacts. Normally these fees would be estimated in advance, but even if they are not,
users of that service have a significant difference from users of the services to be offered
under this regulatory change. Austrade’s clients are commercial entities seeking to obtain
considerable benefits for themselves. Such benefits would not accrue to the applicants to
the Attorney-General for a cy pres scheme or for an amendment to a trust to permit
investment in common funds. It is for such reasons that most providers of goods and
services offer their services for a price which is fully agreed in advance.
Other service areas that set a fixed tariff or charge, even where the costs may vary
considerably are found both within government and outside of government. An example of
the former is the Magistrates Court. Outside of government an example is tax
accountants, who offer services at a fixed price even though the costs may, in the event,
vary.
Suppliers do this because they themselves are in a better position than their customers to
estimate the costs and it is, therefore more efficient for the supplier to set them in advance.
Such a policy does not deter the service’s use as would be the case where the applicant
can only speculate on the actual price to be paid. In those cases where the supplier is in a
better position to gauge costs, it is normally more efficient to set a fixed price even though
this may not reflect all costs incurred on individual cases.
This option is not recommended as the uncertain level of a fee based on costs that the
applicant is not well placed to estimate for him/herself would deter some eligible trusts from
applying and could also significantly deplete the funds held by the smaller charitable trusts.
Option Three: Charging a single flat fee
For the above reasons, having a single flat fee would also be attractive. This could be set
at the mean of the proposed fees ($800 for cy pres and $1540 for common funds).
However, this would be less efficient than the recommended option because, though there
is an imperfect correlation between the size of a fund and the complexity of cy pres work
that might be required of it, there is nonetheless some relationship between them.
Graduated fees attempt to reduce some of the cross subsidy in the same way that a motor
car mechanic would offer lower prices for servicing a Toyota Corolla than from a Mercedes
Benz; the garage would do so even though the latter might sometimes actually entail less
work since normally its costs would be greater. It is relatively infrequent that small funds
entail more costs since the larger funds with greater disbursements will normally contain
more provisions that need to be addressed. A graduated fee structure attempts to cater for
this.
Option Four: Setting a schedule (preferred option)
With regard to the fees regulations the issue is whether there are better fee options. These
would entail different scales designed to recoup an appropriate level of costs incurred by
the Attorney General in receiving advice from the VGSO. The lawyers with whom we
consulted who specialise in representing charitable trusts were of the view that the
suggested level of fees is reasonable.
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Fees to assist administration of charitable trusts
Summary of the criteria weightings and values assigned to the options
In the following balanced scorecard we combine our estimates of the importance of the
criteria against which the appropriate decision should be taken and an assignment of the
importance of these which quantifies the above discussion.
We identify three criteria for assessing the options: the administrative costs for the
Attorney-General in setting and monitoring charges, the cost certainty for trusts in making
applications, and the cost reflectiveness of each of the options. A weighting, which adds
up to a total of 100 per cent, is assigned to each of the criterion. The weighting is based
on government policy in terms of assisting the more efficient management of trusts and
doing so in ways that meet government requirements to achieve cost recovery for its
programs and to avoid cross subsidies.
Based on the assessment of the identified options, which was discussed above, a score
(+1 to -1) is given to each of them in all three criteria. The weighted scores for each
identified option are summed to provide an estimate of the highest ranking option. In the
analysis tabled below, setting a schedule of fees ranks highest and is the preferred
approach.
Weighted Scorecard for the Identified Options
Weighting
Charging
on Basis
of
Incurred
Costs
Charging
No Fees
Assigned
Score
Administration
cost for AG
Cost certainty
for trusts
Cost
reflectiveness
TOTAL
Weighted
Score
Charging
Single
Flat Fee
Assigned
Score
Weighted
Score
Setting
Schedule
of Fees
Assigned
Score
Weighted
Score
Assigned
Score
Weighted
Score
20%
0
0
-0.5
-0.1
0
0
0
0
40%
1
0.4
-0.5
-0.2
1
0.4
1
0.4
40%
-1
-0.4
0
1
0.4
0.1
0
0
0.4
0.7
0.28
0.68
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Fees to assist administration of charitable trusts
8. Evaluation strategy
The Department of Justice (through the VGSO) will keep track of applications and their
progress through the system and, if necessary, refine the process. The present number of
new cy pres cases in the $50,000-$500,000 category dealt with by the Supreme Court is 67 per year and is expected to increase somewhat as a result of the lower costs of the new
procedures. This increase is expected to be especially evident during the first few years of
operation
The aggregate level of applications will be monitored within DoJ. Should few new cases
materialize, modifications to the pricing in place may be considered. In this respect the
Department (through the VGSO) is in close contact with a number of the specialist trust
administrators and is well placed to detect any deficiencies that may emerge. Assessment
of pricing will be undertaken every two years following commencement of the regulations.
9. Consultation
Several lawyers active in the administration of trusts and with experience and expertise in
the existing cy pres procedure under the Charities Act were consulted. The VGSO estimate
that these lawyers represent approximately 80% of the clients in this area. Most agreed
that the Amendment Act was highly beneficial and that the fees were reasonable. The file
notes of their interviews follow.
Lawyer 1 (acts for a church)
1. to what extent do you use the fast track procedure?
none in the last 5 years [compared to 1 per annum to the Supreme Court]. With the
increase in the monetary limit to $500,000, it is anticipated there will be 2 applications per
annum.in that range
2. is the fast track procedure more cost efficient? Across the range of trust values?
undoubtedly cheaper. Considerable savings in not having to brief counsel. There is no
formal requirement for the application [unlike an application to the Sup Ct which requires
considerable elaborate drafting by a lawyer] and the applicant develops its own simple and
clear format in one document which works well. Although the same legal criteria apply to
these applications, they are received “sympathetically” by the AG.
the much simpler procedure is a great benefit
3. what level of fees do you think the following trusts can tolerate without defeating the
purpose of the fast track procedure?
Hard to say. Suggests that fees be set with an eye on the VGOS’s charges. User-pay
basis is acceptable and reasonable. Sliding scale can be justified. In its experience there is
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Fees to assist administration of charitable trusts
some correspondence between the size of the fund and the complexity of the
determination of the cy pres scheme.
Suggests:
•
no more than $500 for under funds under $10,000
•
about $3,000 on the top end for funds of $500,000
•
$1,000 for funds up to $50,000
•
$2,000 for funds up to $100,000
•
$2.500 for funds up to $200,000
Lawyer 2 (acts for a University)
1. to what extent do you use the fast track procedure?
uses the fast track procedure about 10 times a year
[Some 60 cy pres applications in the last 4 years; 21 now as we speak]
The university has more trusts (700) than any other university. With the increase in the
monetary limit, there may be more use of the fast track procedure in the short term. The
university now requests the inclusion of a provision, with all new bequests etc., that the
funds be used for the closest purpose possible ….
2. is the fast track procedure more cost efficient? Across the range of trust values?
3. what level of fees do you think the following trusts can tolerate without defeating the
purpose of the fast track procedure?
2 and 3. the procedure is much simpler and the savings are undoubted.
Reasonable to apply user pay principle to fees. Argues that a cross subsidy would be a
very good idea as there is often no nexus between the complexity of the matter and the
size of the fund
Lawyer 3 (acts for a Church and school)
1. to what extent do you use the fast track procedure?
On the average perhaps 2-3 a year. Increase in jurisdiction is very welcome. 6 more
applications expected under the new limit. Presently a trust fund in the region of $70,000 is
a cost write-off because the application to the Sup Ct is too prohibitive.
2. is the fast track procedure more cost efficient? Across the range of trust values?
Proposal is definitely cost efficient across board. Although the work involved is similar, a
statutory declaration goes a long way – no originating motion, no affidavits, and the matter
of appearances is passé.
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Fees to assist administration of charitable trusts
3. what level of fees do you think the following trusts can tolerate without defeating the
purpose of the fast track procedure?
Fee tolerance –
•
funds under $50,000 cannot generate sufficient income to absorb high fees and
can tolerate only a few hundred dollars in fees. Perhaps $500. Otherwise the fees
become a corporate expense not an income one.
•
On the upper limit, a $500,000 fund would have no problem tolerating $1,500 to
$2,000.
•
A sliding scale of fees is sensible provided it is not too progressive as it will
otherwise deter administration of the fund. For example, in the case of a
scholarship for students from a stated geographical area, if it is expedient to apply
for a cy pres scheme [even when the original is not unworkable], one may be
persuaded to do so if the fees do not deter. More students can then be benefited
with, say, a bigger geographical catchment. But if they are set too high one would
simply put up with the difficulties of administration until such time as a clearly
eligible student comes along. Realistically, years…up to 10 years may pass before
the fund can be put to use.
Lawyer 4 (acts for a Church)
1. to what extent do you use the fast-track procedure?
Unclear on the precise number. Is “involved” with them but does not deal with them as
such. Perhaps 6 -10. Have “quite a number” of trusts that are no longer relevant. Whether
more use of the procedure will depend on its cost
2. is the fast-track procedure more cost efficient? Across the range of trust values?
To the extent that it frees up funds for use, yes definitely. Is it “fast-track? Time will tell.
An in-house procedure like that given to the Catholic Church will be faster and cheaper.
3. what level of fees do you think the trusts can tolerate without defeating the purpose of
the fast track procedure?
On the upper limit $400 – 500.
The lawyers consulted during the development of the proposed regulations will similarly be
further consulted upon release of this RIS. If any further significant interest groups are
identified they will also be consulted.
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Fees to assist administration of charitable trusts
10.
Appendix
PROPOSED FEE STRUCTURE
Item
1.
Details
Fees
Application to Attorney-General under section 4(1) of the Act for
directions for the application of property cy pres–
(a)
if the total value of the corpus of the property is
$25 000 or more but less than $50 000
(b)
if the total value of the corpus of the property is
$50 000 or more but less than $100 000
(c)
if the total value of the corpus of the property is
$100 000 or more but less than $150 000
(d)
if the total value of the corpus of the property is
$150 000 or more but less than $200 000
(e)
if the total value of the corpus of the property is
$200 000 or more but less than $250 000
$300
$500
$750
$1000
(f)
.
$1250
$1500
if the total value of the corpus of the property is more than
$250 000 but less than $500,000
Application by trustees of eligible property to Attorney-General under
section
7F
of
the
Act
for
approval
that
Part 1A (Approval for Investment in Common Funds) applies to those
trustees in respect of that property
(a)
if the total value of the corpus of the eligible property is under
$50 000
(b)
if the total value of the corpus of the eligible property is $50
000 or more but under $100 000
(c)
if the total value of the corpus of the eligible property is $100
000 or more but under $150 000
(d)
if the total value of the corpus of the eligible property is $150
000 or more but under $200 000
(e)
if the total value of the corpus of the eligible property is $200
000 or more but under $250 000
(f)
$1000
$1250
$1500
$1750
$2000
$2250
if the total value of the corpus of the eligible property is more
than $250 000 but less than $500,000
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Fees to assist administration of charitable trusts
11.
Copy of proposed
regulations
20
Fees to assist administration of charitable trusts
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Fees to assist administration of charitable trusts
22