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 | |
| Private Foundations | Donor Advised Funds | ||
| Tax Deductibility of Contributions | |||
| Cash | Up to maximum of 30% of Adjusted Gross Income (AGI) | Up to maximum of 60% 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 | |
| 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 | |
| Private Foundations | Donor Advised Funds | ||
| Annual IRS Requirements | |||
| Required minimum distributions for charitable purposes | 5% of average net assets | None | |
| Excise Tax |
1-2% of net investment income Effective for tax years starting after December 20, 2019, this excise tax has been changed to a flat 1.39% rate.
|
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. | |||
