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Private Foundation |
Donor Advised Fund |
| Formation |
Requires formation of a new corporation or trust; must apply for IRS exempt status. |
Simple application and donor advised fund agreement with sponsoring organization. |
| Responsibilities |
Directors and officers have fiduciary responsibilities to manage assets, keep records, prepare IRS tax returns, select charities, verify tax-exempt status of charitable recipients, make and administer grants. May delegate some activities to professional advisors.
Private foundation, donors, and officers and directors subject to self-dealing rules regarding transactions with the private foundation.
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Donors are only required to make grant decisions; donors may provide direction for investing funds (investment options depend on specific donor advised fund).
Donors and family members subject to certain restrictions regarding the donor advised fund.
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| Tax Return/Privacy |
Required. Form 990-PF must be filed annually and is made public; donors and grant recipients are made public. |
Not required. Information is on sponsoring organization’s tax return, but is not identified with donor. Contribution information is generally anonymous, even to recipient organizations, if preferred. |
| Charitable Contribution Deduction |
For publicly-traded stock, donor receives charitable deduction equal to fair market value (limited in certain cases where donor or donor’s family owns a significant proportion of total shares).
For contribution of closely-held interests or real estate, charitable income tax deduction limited to basis.
May claim charitable income tax deduction of appreciated long-term capital gain property at FMV, but deduction is limited to 20% of donor’s AGI. Can opt to take deduction equal to basis; deduction is limited to 30% of donor’s AGI. Excess may be carried forward for five years.
Deduction for cash contribution limited to 30% of AGI with same 5 year carryforward.
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For publicly-traded stock, donor receives charitable deduction equal to fair market value.
For closely-held interests and real estate, charitable deduction generally equal to fair market value.
May claim charitable income tax deduction of appreciated long-term capital gain property at FMV, but deduction is limited to 30% of donor’s AGI. Can opt to take deduction equal to basis; deduction is limited to 50% of donor’s AGI. Excess may be carried forward for five years.
Deduction for cash contribution limited to 60% of AGI with same 5 year carryforward.
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| Income Tax |
1.39% annual tax on net investment income |
Not subject to tax. |
| Limits on Grant-making |
Can award scholarships and prizes directly (after IRS approval). Can make “program related investments” where the private foundation could receive a return from investment in non-profit activity. |
Distributions limited to section 501(c)(3) organizations; may make grants to organizations to fund scholarships and prizes. Can make investments in program related investments. |
| Benefits to Donors |
Funds cannot be used to make contributions where the donor receives a quid pro quo benefit, such as an event tickets or auction items |
| Pledges |
Funds cannot be used to fulfill donor’s individual pledge. |
Funds can be used to fulfill donor’s individual pledge if the DAF sponsoring organization does not reference the existence of the charitable pledge. |
| Payments to Family Members for Involvement |
Family members may serve as directors and officers; directors and officers may receive reasonable compensation for foundation work. |
Family members may serve as advisors. Family members may not receive compensation from donor advised fund. |
| Investments |
Wide variety of investments |
Typically, donor has access to a limited number of investments, although sponsoring organizations will make arrangements for larger funds. |
| Required Grant-making |
Required to make grants equal to 5% of the foundation’s assets annually. |
No distribution requirement. Sponsoring organization may require certain distributions over time. |
| Legal Control |
Donor can retain legal control of private foundation. Control of the organization is vested in directors or trustees appointed by the donor. |
Donor does not have legal control, but may make recommendations about investments and grants. Sponsoring organization almost certainly follow these recommendations unless (i) the proposed grantee is not a proper charity or (ii) the proposed grantee is outside the scope of the donor advised fund. |
| Grant-making after Donor's Passing |
Directors and trustees left in place after donor’s passing generally control the distribution of assets (subject to any legally binding restrictions left by donor). |
Family members (or others) may be designated as successor advisors. Sponsoring organization may limit grants to those made in accordance with donor’s overall wishes. |
