Donor Advised Funds and Private Foundations are two mechanisms for individuals and corporations to give to charities and manage ongoing philanthropic activities.
What the donor is trying to achieve can help guide whether a Donor Advised Fund (DAF) or a Private Foundation is the right choice.
What’s the Difference?
A main difference between a DAF and a Private Foundation is the level of control the donor has over their contributions. With a DAF, the donor makes a contribution to a fund held by a charitable organization like a community foundation or financial foundation that offers such services. The donor can name the fund after themselves, their family, their business, or any other number of options.
The donor advised fundholder then recommends how the funds should be distributed to charitable organizations. It is important to note, however, that the final decision on how the funds are distributed is made by the organization that manages the DAF.
Private Foundations are generally started by a donor, a family or a corporation and are controlled by the donor or their designated representatives. While this allows the donor to retain more control over how their funds are used and distributed, it also requires a significant level of administrative responsibility and associated costs.
Private foundations are subject to extensive regulations and compliance requirements, including annual tax filings and reports, as well as ongoing operational and management responsibilities. DAFs are generally simpler and less administratively burdensome, making them more accessible to a wider range of donors.
Advantages of Donor Advised Funds
DAFs also offer more flexibility in terms of funding. DAFs can accept a variety of assets, such as cash, publicly traded securities, real estate, or life insurance policies, whereas private foundations typically accept cash or publicly traded securities but are subject to non-qualifying investment rules. Additionally, DAFs can be funded with a one-time contribution or through a series of contributions over time, whereas Private Foundations generally require a much larger initial contribution and considerable legal consultation.
A Donor Advised Fund can be started at the Community Foundation North Okanagan with an initial gift of $5,000 and a pledge to reach $25,000 over a five-year period. It should be noted that Community Foundations also provide extensive options for donors to give at any level without having to commit to the higher levels of giving discussed in this article.
With an increasing number of financial institutions creating mechanisms to add DAF management to their service offerings, it is important for donors to be knowledgeable about their options.
Making the Right Choice
Depending on the individual or corporation’s goals and circumstances, one option may be more suitable than the other. It is also possible to have both a Private Foundation and a DAF, in fact many people do. Community Foundations offer opportunities for Private Foundations and donors with DAFs held by other charitable institutions to work with community foundation staff in an advisory capacity to help guide donations and collaborate for greater impact.
In some cases, over a period of time, the appetite to manage a Private Foundation or DAF outside of a community foundation may fade or become impractical. In many cases, a Private Foundation or DAF can be wound down or even rolled into a community foundation at a donor’s request.
Regardless of the charitable giving vehicle chosen, the Community Foundation North Okanagan is here to help individuals, families, and corporations give back to charitable causes. We specialize in understanding local issues, funding local causes, and collaborating on local solutions. For more information contact Leanne Hammond, Executive Director, Leanne@cfno.org or