Frequently Asked Questions (FAQ): Choosing Between Donor-Advised Funds (DAFs) and Private Foundations

Ease of Setup and Management: DAFs are simple to establish, cost-effective, and reduce administrative burdens such as tax filings and charity vetting.

Tax Efficiency: Contributions are eligible for up to 60% of AGI as a tax deduction for cash and up to 30% for appreciated securities.

Anonymity: DAFs allow donors to make anonymous contributions.

Flexibility: Clients can recommend grants to charities over time, creating a long-term philanthropic legacy.

Broader Grant Options: Foundations can fund a wider range of recipients, including individuals.

Family Involvement: They can employ family members as board members or employees.

Higher Costs and Responsibilities: Foundations require annual tax filings, adherence to minimum distribution requirements, and generally involve higher administrative costs.

Lower Deduction Limits: Contributions are capped at 30% of AGI.

When they prioritize simplicity, lower costs, and immediate tax benefits.

When they prefer anonymity or want to avoid the administrative complexities of managing a foundation.

If the client seeks greater control over their charitable giving.

When they have the resources and willingness to manage additional administrative responsibilities and costs.

Yes, a private foundation can make distributions to a DAF to satisfy minimum distribution requirements while gaining flexibility in grant timing.

Combining both tools maximizes impact and efficiency by leveraging the strengths of each.

Understand the client’s philanthropic goals, capacity for administrative management, and tax planning needs.

Suggest tailored solutions that align with their preferences, which might include using both DAFs and private foundations.