For many affluent individuals, charitable giving isn't just about generosity — it's how they shape their legacy and make a measurable mark on the world. As an advisor, helping clients maximize their philanthropic efforts is an especially impactful way to build meaningful, lasting relationships.
Private foundations and donor-advised funds offer two distinct approaches for charitably inclined clients. Choosing between them ultimately comes down to understanding what clients want their charitable giving to look and feel like.
By asking thoughtful questions and listening closely, advisors can help clients align their charitable intentions with the structure that best supports their vision — and become indispensable financial partners in the process.
What Does Charitable Giving Mean to You?
Some donors simply want to give back, while others have specific goals attached to their philanthropy, such as starting their own scholarship program or grant initiative. With a private foundation, clients have more control over how their donations are used. DAFs can only distribute funds to IRS-qualified charities.
Cost is another consideration. Private foundations require legal support, annual accounting and tax services, and — if the foundation is staffed — salary or consulting fees. Some clients may view these costs as part of the value of running their own charitable entity, while others may find them burdensome.
How Involved Do You Want to Be in Day-to-Day Operations?
Private foundations require more setup and ongoing administration than DAFs. Establishing a private foundation involves creating a standalone charitable entity, applying for tax-exempt status, forming a board, developing policies and procedures, holding regular meetings and filing an annual Form 990PF.
DAFs involve minimal administrative work for the donor since the sponsoring public charity handles tax reporting, compliance and record-keeping. Donors recommend grants, but the work is performed by the sponsor. This simplicity is one reason that DAFs are the fastest-growing charitable giving vehicle in the United States, according to research from the American Heart Association.
Are Specific Tax Considerations Driving Your Decision?
DAFs generally provide higher deduction limits than private foundations, and assets inside the DAF grow tax-free. Donors may also be able to mitigate capital gains on contributions of appreciated assets. Private foundation contributions, however, are subject to stricter limits and pay an excise tax (currently 1.39%) on net investment income.
How Important Is Control Over Grant-Making?
Private foundations must distribute at least 5% of assets each year, while DAFs do not have a minimum annual distribution requirement. DAFs allow donors to recommend grants at their own pace, which can be helpful for clients who want to allow assets to grow or want to manage timing around their gifts.
How Important Is Privacy or Public Visibility?
Private foundations must publicly disclose board members, staff compensation and detailed grant information each year, while DAFs allow for anonymity because the sponsoring charity is the entity making the grants. This may appeal to clients who prefer privacy, while donors who want visibility for their giving may prefer a private foundation.
What Role Do You Want Your Family to Play Now and in the Future?
Private foundations must have a board and a plan for who will manage the foundation over time. This can create meaningful roles for future generations but also commits them to ongoing meetings, compliance responsibilities and a charitable mission they may not share.
Most DAFs allow donors to name one or more successor advisors, with fewer obligations for those who inherit the role. There's no board to run and no operational requirements, which can reduce pressure on future generations while still allowing families to collaborate on giving.
Nicole Hisler is chief sales and marketing officer of Raymond James Trust and president of Raymond James Charitable, overseeing administration and educating advisors and their clients on giving strategies.
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