Should I Use a Donor-Advised Fund or a Private Foundation?

Donor-advised funds (DAFs) and private foundations are both charitable giving vehicles that help people facilitate their philanthropic goals. However, with different structures, rules, and features, donor-advised funds and private foundations each come with unique advantages and limitations. Therefore, it’s essential to analyze your circumstances and preferences to select the method that will best suit you. Below is a table that addresses some distinguishing considerations in order to help compare the two approaches.

Donor-Advised Fund (DAF)
Private Foundation
Control DAFs reduce operational and logistical commitments that can be involved with charity. Sponsors are given the legal authority of proceeds, and then recommendations become the primary role of donors. Private foundations are geared towards donors who want to be in the driver's seat. As a result, there is multi-generational control of assets, the hiring of staff, and the ability to navigate investments.
Start-Up & Maintenance Cost Start-up fees are minimal, if not already covered by the sponsor organization. The maintenance cost is generally lower and fixed. There are greater start-up and yearly maintenance fees than DAFs. However, the maintenance fees generally are reduced with accumulated experience.
Initial Logistics Simply select a sponsoring organization to start giving to. You may require the assistance of a CPA, lawyer or other advisors to get the legal framework.
Required Admin Tasks You simply make recommendations for public charities to receive the gifts. Some critical tasks include holding board meetings, maintaining minutes, hiring staff, keeping records, selecting charities, administering grants, and filing tax returns.
Tax Benefits
  • Cash donations: allowable income deduction of up to 60% of adjusted gross income.
  • Donations of long-term appreciated assets*: allowable income deduction of up to 30% of adjusted gross income.

Are assets or investments that you've held for more than one year. Ex. stocks, bonds, and real estate.

  • Cash donations: allowable income deduction of up to 30% of adjusted gross income.
  • Donations of long-term appreciated assets*: allowable income deduction of up to 20% of adjusted gross income.

Are assets or investments that you've held for more than one year. Ex. stocks, bonds and real estate.

Annual Minimum Distribution There is no minimum amount from the donation pool that must be given each year. 5% of the fair market value of assets must be distributed each year.
Privacy Most donations can be made both privately and publicly upon request. Foundations must file tax returns, donations, and personnel compensation. Most of the filings become public records.
Excise Taxes 0% of net investment income 1.39% of net investment income.
Lifespan & Legacy They typically only last one or two generations but can continue to be infinitely inherited. They have historically lasted longer within families and can also continue for perpetuity.
Grant Making Giving is generally limited by the sponsoring organization to recognized 501(c)(3) public charities.

Ex: churches, religious institutions, animal welfare agencies, and educational organizations

Giving can contribute to recognized 501(c)(3) organizations and, after meeting additional IRS requirements, to individuals through scholarships, fellowships, and direct assistance to those in need; international organizations; and other nonprofit and for-profit entities.
Types of Assets for Contribution Most liquid and common assets can be contributed, though the size of the selected sponsor will influence the comprehensive range of resources accepted. The range of assets available to contribute is based on the capabilities of the foundation’s staff and their ability to liquidate or manage investments.

After reviewing some of the advantages and disadvantages, some of the broadest differentiating factors include financial commitment, time commitment, and the need for control over operations. Both approaches to philanthropic work are great, and each can have value for different circumstances and desires.

1. www.irs.gov/pub/irs-tege/donor_advised_explanation_073108.pdf
2. www.hurwitassociates.com/private-foundations-and-excise-taxes/minimum-distribution-requirements-irc-section-4942/
3. www.irs.gov/pub/irs-pdf/p526.pdf
4. www.cnb.com/private-banking/insights/daf-vs-private-foundation.html
5. www.nptrust.org/donor-advised-funds/daf-vs-foundation/



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