Donor Advised Fund or Private Foundation?

By Joe Williams 1 month ago.

Two of the most popular charitable vehicles are donor advised funds and private foundations, but which is best to use in your generosity journey?  That depends. Nearly $70 billion in grants to charity came through private foundations and donor advised funds (DAFs) in 2017. Understanding the differences between these two vehicles is crucial in deciding which is most appropriate for you and your family’s giving.

Here are eight key comparisons to consider:

Start-Up Cost

  • DAFs: Can be established immediately at a low or no cost. Most sponsors require an initial minimum contribution of $5,000 or more, but you can open a DAF at The Signatry with no minimum balance.
  • Private Foundations: May take months to establish and often require a significant investment of both time and capital.

Administration:

  • DAFs: Charitable sponsors (i.e., The Signatry) carry most of the administrative burden (managing investments, recordkeeping, writing checks, tax receipting, administering grants)
  • Private Foundations: Often must hire their own staff or use third-party contractors to manage their administrative work.

Control:

  • DAFs: Once assets are contributed to a fund; the charitable sponsor becomes the legal owner. Donors retain advisory privileges to grant funds as they choose, but the charitable sponsor has the final say in whether the grant is approved or denied.
  • Private Foundations: Allow donors full control over assets and grants.

Tax Benefit:

  • DAFs: Tax deduction limits may be between 30-60% of adjusted gross income (AGI) and may be based on fair market value.
  • Private Foundations: May have limits between 20-30% and may be based on cost-basis.

Investment Flexibility:

  • DAF: Because the Charitable Sponsor legally owns all contributed assets, donors avoid the risk of managing and investing the assets but may have less flexibility in selecting how to invest.
  • Private Foundations: Full control over how the assets are invested, but also retain the full risk managing the invested assets.

Payout Requirements:

  • DAFs: Do not have payout requirements, but Faith-based DAF entities are distributing over 30% annually with a “give it now to accomplish the most now” mindset.
  • Private Foundations: Have a required minimum annual distribution of 5%.

Privacy:

  • DAFs: Allows donors to make grants with complete anonymity.
  • Private Foundations: Required to disclose their activities and supported charities on an annual basis

Legacy:

  • DAFs: How a fund will be advised after the death of the original donor depends on the charitable sponsor’s succession policy, but most sponsors, including The Signatry, allow donors to appoint successors to receive full advisory privileges of the fund.
  • Private Foundations: Can also be passed down over generations to form a charitable legacy.

This is not a complete list of the differences between donor advised funds and private foundations. Each vehicle has its benefits depending on your philanthropic goals. DAFs are cheaper and easier to open and operate, offer donors complete anonymity, may offer more significant tax benefits, and allow donors to decide when and how much to give. Private Foundations offer donors greater control over how their funds are invested and granted to charity.v

Interested in learning more about donor advised funds with The Signatry?

Visit www.thesignatry.com/daf or call me at 405-819-2063.

Joe Williams
Joe Williams Joe Williams serves as President of the Oklahoma City Region of The Signatry. With years of experience in banking and ministry, Joe works with donors to maximize gifting opportunities and charitable impact.

Join the conversation. Get the newsletter.