Community Foundation (DAF) versus Private (Family) Foundation
Community Foundations (Donor Advised Funds or DAFs) and Private Foundations are both gift options that can be used separately or combined for even more flexibility. Some of the differences are explained below:
Donor Involvement:
– DAF: The Donor recommends grants to be qualified non-profit groups. Grants are approved by the Community Foundation’s Board of Directors. You don’t own or control the money in the Fund.
– Private Foundation: The Donor appoints the Board which controls investments and grant-making.
Tax Status:
– DAF is a public charity.
– Private Foundation is a private charity.
Income Tax Deductions:
Deductions for gifts of cash:
– DAF Up to 50% of adjusted gross income.
– Private Foundation up to 30% of adjusted gross income.
Deductions for appreciated stock:
– DAF: Fair market value up to 30% of adjusted gross income.
– Private Foundation: Fair market value up to 20% of adjusted gross income.
Deductions for gifts of Real Estate and closely held stock:
– DAF: Fair market value up to 30% of adjusted gross income.
– Private Foundation: Cost basis up to 20% of adjusted gross income.
Grant-making support:
– DAF: professional help is available identify and assess grantees, provide input on community needs, and verify non-profit status of groups. Only pure charitable gifts can be recommended to the Fund.
– Private Foundation: Donors must arrange their own grant-making and monitoring structure.
Initial start-up Costs
– DAF has no initial costs.
– A Private Foundation requires several thousand dollars for legal and accounting expenses and filing fees.
Minimum contribution for start-up costs:
– DAF requires contributions in the thousands of dollars.
– A Private Foundation would typically require millions of dollars for a minimum contribution.
Administrative requirements:
– DAF requires a pooled administration annual fee. The Community foundation handles reporting.
– A Private Foundation requires several thousand dollars for legal and accounting expenses and filing fees on an ongoing basis. An annual 990 tax form must be filed.
What investment is best for you?
Donor Advised Fund:
– You don’t own or control the money in the fund.
– No pledges or written promises can be paid by the Fund.
– Only pure charitable gifts can be recommended to the Fund.
– The Fund’s parent is the grant-maker for the charitable funds.
Private Foundations:
– Private Foundations are better suited for philanthropic legacies over $10 million.
– The ability to employ family members in the legacy.
– The ability to make international grants.
– The ability to travel with, or compensate, Board members in relation to the Foundation’s philanthropy.
– The need to have ultimate control over investment and distribution of the funds.
You might need both:
– Private Foundation minimum distributions can be made to a DAF.
– DAFs can make more complicated grants without threat of excise tax.
– DAFs can be established to draw outside contributions with full tax advantages for partners.
– DAFs can be “match vehicles” for Private Foundations.
– End-of-life Private Funds can be collapsed into a DAF
Conclusion:
To conclude, the DAF is more convenient and flexible than a Private Foundation. It also helps the client save on taxes and administrative costs and tasks. In addition, a DAF is confidential, whereas all contributions to, and distributions from the Private Fund are public record. Donors should check with their financial and legal advisors when deciding which instrument to use.
