Which Option is Best for Your Client’s Philanthropic Goals?

One of the most common questions from potential donors is whether they should choose a Donor Advised Fund (DAF) or a private foundation for their giving. Although these giving vehicles are two of the most popular, they are created and operated very differently. Understanding the distinctions can help you guide your clients in determining which option may be best for them.

SEE A DAF AND PRIVATE FOUNDATION COMPARISON CHART

Donor Advised Funds vs. Private Foundations

A Donor Advised Fund is a charitable giving account administered by a public charity like the Community Foundation of Central Georgia that allows donors to make charitable contributions and maintain advisory privileges over the distribution of the funds. Although the sponsoring organization legally has ultimate control over the funds, donors retain flexibility in grantmaking, including the option to donate anonymously and recommend grants to a wide variety of charitable organizations over time. A Donor Advised Fund at CFCG does not require a minimum size, and there is no minimum amount that must be granted annually from Donor Advised Funds; however, most fund advisors use their funds regularly.

A private foundation, however, is a distinct legal entity created by an individual, family, or corporation and governed by its own bylaws, articles of incorporation, etc. Although private foundations give donors primary control over investments and grantmaking, they also require substantially higher legal, accounting, and operational costs and involve more rules and regulations, including distributing at least 5% of their assets to qualified charitable organizations each year.  

How Can CFCG Help?

Converting a Private Foundation to a Donor Advised Fund

If you have clients with a private foundation who want to continue to advise the grantmaking, but are no longer interested in handling the accounting, legal, and investment responsibilities, CFCG can work with you and your client to convert the private foundation to a Donor Advised Fund while preserving the name and giving priorities of the original private foundation.

Creating a Companion Donor Advised Fund

It can be beneficial for a private foundation to also have a companion Donor Advised Fund at the Community Foundation. Here are some of the common situations where having a complementary Donor Advised Fund may be beneficial:

Meeting the 5% Payout

Private foundations may elect to grant part or all of the annual payout requirement to a Donor Advised Fund rather than force a decision of where and how to distribute its grants to satisfy the rule. Making a grant from a private foundation to a Donor Advised Fund gives the private foundation trustees additional time to thoughtfully determine how to distribute grants.

Maintaining Anonymity

By law charitable grants from a private foundation must be disclosed. If private foundation trustees wish to give to a project anonymously, they can remain anonymous if the grant is made from a Donor Advised Fund.

Engaging Trustees

Donor Advised Funds can provide opportunities for trustees or younger-generation family members to be involved with the charitable giving process at levels of responsibility that work for them. A trustee who may prefer to end his or her trustee duties but remain involved in the charitable mission may be able to distribute (depending on the governing documents) a share of the private foundation’s assets to a Donor Advised Fund. Likewise, younger generation family members could recommend grants from a Donor Advised Fund as a way to engage in the giving process without all the responsibilities of being a foundation trustee or as a way to prepare for assuming the responsibilities of a foundation trustee.

At CFCG, we work with donors and their professional advisors to identify the best approach to charitable giving that maximizes impact and achieves charitable goals. If you have a client interested in establishing a Donor Advised Fund or converting a private foundation to a Donor Advised Fund, learn more about how we work with professional advisors and our fee schedule here and contact Julia Wood to discuss how CFCG can support you.