Private Foundations & DAFs
Choosing the Right Philanthropic Vehicle
Looking for a longer-term, more strategic vision for your philanthropy? A private family foundation might come to mind. But while private foundations may seem like an attractive option for some, you might be shocked to realize some of the disadvantages.
While the name 'private foundation' implies anonymity, a private foundation actually provides the opposite. In fact, it cannot withhold its identity when making a grant, whereas a donor advised fund has much more flexibility.
Plus, there are important tax implications for private foundations which differ from the tax advantages of a donor advised fund at the Community Foundation.
We put together a chart to help distinguish the similarities and differences between a donor advised fund held at the Community Foundation and a private foundation. Often times, you'll find a donor advised fund is a more flexible option with the same benefits as a private foundation. Plus, you'll have the advantage of the Foundation's expertise on your side.
Private Foundations and Donor-Advised Funds at a Glance
Private Foundation | Donor Advised Fund | |
|---|---|---|
Administrative Fees | Typically high, but can be modest | Fees starting at 1% and decreasing for balances over $1 million |
Set-up Process | Legal work required, can be time consuming | Can be done in less than a day with no set-up fee |
Tax Deduction for Contributions | Cash: 30% of AGI Securities: 20% of AGI Privately Owned Assets: Cost Basis | Cash: 60% of AGI Securities: 30% of AGI Privately Owned Assets: Fair Market Value |
Excise Taxes | Up to 2% of annual investment income | None |
Annual Distributions (Grantmaking) | Required 5% distribution | Flexible, with no minimum requirement |
Anonymity | No | Yes, donors can choose full/partial anonymity if desired |
Lead beneficiary of CLAT | No | Yes |
Perpetuity | Yes, if desired | Yes, if desired |
Ongoing Administration | Responsible for administration and IRS filings | Community Foundation handles all administration and IRS filings |
Please note, exceptions to the rules always apply, and each situation is unique and should be evaluated based on circumstance.