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Private Foundations & Donor Advised Funds

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Private Foundations & Donor Advised Funds

AN OVERVIEW AND COMPARISON

Private Foundations Donor Advised Funds
The Basics: Terms, Usage and Numbers
Terminology The term private foundation generally includes tax-exempt 501(c)(3) family, corporate and independent foundations. Donor advised funds are held by sponsoring organizations in which the donor retains an advisory role as to ultimate charitable distributions.
Explanation The word private refers to the source of a foundation's funds, i.e., usually one or just a few (thus private) donors. In contrast, the most common type of 501(c)(3) organizations, known as public charities, receive funding from many so-called public sources such as individuals, foundations, and/or governments. Sponsoring organizations are themselves 501(c)(3) public charities. Since sponsoring organizations receive many contributions (in the form of DAFs) from a wide range of donors, sponsoring organizations qualify for public charity status. DAFs are pooled together by the sponsoring organization for investment purposes but accounted for separately.
Estimated Number in U.S. (2016) 90,000 270,000
Estimated total assets held (2016) $600 billion $80 billion
Prominent Examples Gates Foundation ($41 billion in assets); Ford, Getty, Johnson, Lilly ($10-12 billion in assets each); Hewlett, Kellogg, MacArthur, Mellon, Packard ($6-9 billion each) Major sponsoring organizations include Fidelity Charitable Gift Fund, Vanguard Charitable, National Philanthropic Trust, Schwab Charitable Gift Fund, and community foundations across the U.S.
Average Assets $550,000 $240,000
Number with assets over $10 million 5,000
2015 grants awarded (total private giving in U.S.: $316 billion) $52 billion $15 billion
Tax Deductibility of Contributions
Cash Up to maximum of 30% of Adjusted Gross Income (AGI) Up to maximum of 50% of AGI
Publicly traded securities Up to 20% of AGI Up to 30% of AGI
Closely-held stock, real property, and most other tangible items Up to 20% of AGI (at cost basis) Up to 30% of AGI (at fair market value)
Control
Legal title to contributed funds Board of Directors/Trustees established by founder/s Sponsoring Organization
Fiduciary responsibility for funds Foundation Board of Directors/Trustees Sponsoring Organization
Grants and allocations Foundation has full control to authorize and direct distributions Donor makes recommendations/advises
Investments Foundation has full control Donor has advisory privileges or is often permitted to select from a portfolio managed by the sponsoring organization

Private Foundations Donor Advised Funds
Charitable Activities
Grantmaking May make grants to recognized 501(c)(3) organizations and, after meeting additional IRS requirements, to individuals through scholarships, fellowships, and direct assistance to those in need; to international organizations; and to other nonprofit and for-profit entities Giving is generally limited by the sponsoring organization to recognized 501(c)(3) public charities
Direct program operations May conduct and participate in charitable programs and may provide direct charitable services Generally not permitted
Annual IRS Requirements
Required minimum distributions for charitable purposes 5% of average net assets None
Excise Tax 1-2% of net investment income None
Reporting Tax return Form 990-PF None to donor; sponsoring organization files Form 990 on total DAFs and other funds it holds
Disclosure of assets, contributors and grants Required on Form 990-PF Not required, generally allowing for anonymity
Family engagement
Family members may be involved to the extent founder/s wish. Family may comprise all or part of the foundation board. They may actively participate in foundation grantmaking, management, and programs. Family members with account privileges may generally make grant recommendations.
The duties and rights of family members and outsiders, and expectations as to board succession, is a critical early consideration in foundation formation and operation.

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