Comparing DAFs & Private Foundations
A dedicated account for making charitable contributions usually housed at a sponsor/fund manager.
A non-governmental, non-profit 501(c)3 organization that donates money, usually funded by an individual, family, or corporation.
Some things to remember when deciding which charitable option to choose.
- Tax deduction for donations (according to IRS guidelines).
- Ability to include family in giving decisions.
- Ability to appoint a successor advisor.
- Greatest flexibility in giving with independent DAF sponsors.
- Ability to grow charitable dollars tax-free.
- Not subject to IRS 5% minimum distribution requirement.
- Usually family funded and run.
- Required to retain staff to administer the foundation.
- Able to donate to some 501(c)4 organizations as well as 501(c)3 organizations.
- Subject to the IRS 5% minimum distribution requirement.
- Investment income is taxable.
- Cannot grant anonymously.
There’s no wrong way to do the right thing.
Between DAFs and private foundations, what’s the best option? It depends on the kind of positive impact donors want to make.
FAQs
donor-advised fund
Private Foundation
Are the donations tax deductible?
In accordance with applicable law.
In accordance with applicable law.
Does it allow grants to 501(c)3 organizations?
Does it allow grants to non-501(c)3 organizations?
Donations can be made to some 501(c)4 organizations.
Are there any start-up costs?
Initial donation, which varies by sponsor/fund manager.
Varies depending on state and locality.
Tax on investment income?
*Some investments must pay unrelated business income tax (UBIT).
1-2%
Able to grant anonymously?
Does this giving option accept complex assets?
Are there fees?
Vary by sponsor/fund manager.
There are costs incurred to hire a staff to administer the foundation.
Does this option allow for donations to political causes/candidates?
Is there an IRS minimum distribution requirement?
5% minimum distribution for private foundations is an annual requirement.
Functions of a DAF
A DAF is ideal for someone looking for a flexible giving option that gives the donor the ability to include their family in any giving recommendation, and to easily appoint a successor advisor. A DAF allows charitable dollars to grow tax-free and allows a donor to recommend an anonymous grant to a wide-spectrum of causes or charities.
Functions of a Private Foundation
A private foundation is typically family-funded and requires staff to administer the foundation. Even with a hired staff, this can be a lot of work for a donor to run. There are some IRS minimum distribution requirements, and there is no anonymity when giving to causes and charities.