DAFs, Private Foundations: Working Separately and Together

Fidelity Charitable Gift Fund and Association of Small Foundations collaborate to educate advisors and donors

Affluent individuals and families who want to formalize their charitable giving can choose from a variety of vehicles to meet their giving goals, and often turn to their professional advisors for help in selecting the most appropriate one.

On Wednesday, Fidelity Charitable Gift Fund and the Association of Small Foundations (ASF) announced a collaboration designed to educate financial advisors and donors about donor-advised funds (DAFs) and foundations, two of the most widely used giving vehicles, and how they complement each other.

As part of the collaboration, the Gift Fund issued a new white paper that analyzed DAFs and foundations, and also offered guidance on choosing the appropriate giving vehicle and when the best strategy might be a combination of the two.

“As donors become even more forward-looking and strategic about their giving, we’re seeing an increase in the use of donor-advised funds as complements to private foundations,” Sarah Libbey, president of the Gift Fund, said in the statement. “Working with ASF, we want to dispel the notion that donors must choose between a donor-advised fund and a private foundation—and the two vehicles are somehow mutually exclusive.”

Besides providing an in-depth analysis of foundations and DAFs, the white paper offers questions to consider when determining the appropriate giving vehicle. At times, a combination of the two is ideal; for example, when a donor with a private foundation wants one of the following:

  • Support with determining eligibility of grantees—At times, a foundation is faced with complex questions determining exempt status or has a large number of grants to process. DAFs can handle these situations with expertise and efficiency.
  • To make anonymous grants—Donors can use a DAF as a complement to a private foundation when they want to make anonymous donations. DAFs allow donors to decide, grant-by-grant, which donations will be anonymous.
  • To increase tax deductions—The standard tax deduction for donations to a private foundation is 30% of the donor’s adjusted gross income (AGI). Donors who want to receive a tax deduction beyond 30% of their AGI can leverage a DAF to make additional cash donations up to 50% of their AGI.

Another instance in which a private foundation might choose a DAF is when it wants to close its doors. Private foundation assets can be transferred to qualified public charities, including DAFs. A DAF allows the donor to continue to be involved in grant making after the foundation closes.

As part of their collaboration, ASF and the Gift Fund will publish several additional white papers designed to help donors and their advisors further their charitable giving.

“This collaboration is an important milestone in the philanthropic world,” Kathryn Petrillo-Smith, managing director of ASF, said in the statement. “In an age where charitable dollars are tight, yet the call for philanthropy is on the rise, donor-advised funds and foundations can work together to help donors and those who advise them choose the vehicle—or vehicles—that best suit their needs and facilitate their giving.”

The Fidelity Charitable Gift Fund is an independent public charity, established in 1991. Since its inception, the Gift Fund has helped donors support more than 136,000 nonprofit organizations with some $11 billion in grants. The Association of Small Foundations is a membership organization of nearly 3,000 foundations with few or no staff.

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