Private Foundation or Donor-Advised Fund: The Ultimate Dilemma

July 8, 2021

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Private foundations and Donor-Advised Funds are both vehicles to engage in philanthropic activities. Understanding the differences between the two is critical in determining which is more appropriate for your unique circumstances. Whether you prefer the greater control afforded by a private foundation or confidentiality and fewer restrictions of a DAF, each has its proper use.

A Private Foundation is an exempt organization, a legal entity under section 501c3 that is not classified as a Public Charity. Such entity can be formed by an individual, family, or another for-profit entity and typically involves an initial large donation. Usually, private foundations will not solicit funds from the public. Exempt status is maintained by supporting public charities or engaging in other activities that serve the public good.

A Donor-Advised Fund is a Charitable investment account that is usually managed separately. The account is an asset component in a section 501c3 organization. A contribution to this account gets an immediate tax deduction. The individual who makes the donation may recommend prospective recipients to the sponsor. However, the sponsoring entity has the right to make the final decision.

The following chart summarizes the main differences between the two vehicles:

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Tax Considerations

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Ultimately, Private Foundations and Donor-Advised Funds are both effective ways to manage wealth and achieve philanthropic impact. may be different when making decisions between. Some may find a Donor-Advised Fund more beneficial in terms of meeting financial goals. However, others may prefer the intangible value in giving and helping others, making a positive impact, and leaving a personal and family legacy.