Philanthropy Series Part Four - Family Foundation vs. DAF: Choosing Your Charitable Adventure Style
Just like getting outdoors, everyone has their own style of exploration. Some families prefer the flexibility of a day hike—they can pack light, be spontaneous, and adapt easily as new opportunities arise. Others like the structure of a long, well-planned expedition—mapped routes, gear lists, and traditions passed down over time.
When it comes to charitable giving, donor-advised funds (DAFs) and private foundations provide two distinct approaches. One offers flexibility and simplicity. The other gives families more control and permanence. The right choice depends on your goals, resources, and the kind of legacy you want to build.
Let’s break down the key differences and considerations for families choosing between these two giving vehicles.
What Are Private Foundations?
A private foundation is a nonprofit organization typically funded by a single individual, family, or business. Once established, the foundation becomes its own legal entity governed by a board, which usually includes family members or professionals, like advisors. The board members then make decisions about how the foundation’s assets are invested and distributed.
On the scale of charitable giving vehicles (particularly the ones we’ve touched on so far), a private foundation offers families maximum control over when, how, and where their funds are distributed.
That being said, it also comes with significant responsibilities such as:
Stringent administrative work
Annual filings
Oversight of grantmaking
Compliance with federal regulations
For families serious about philanthropy who want a hands-on role in directing significant charitable giving efforts, a foundation could be worth considering.
A Reminder About DAFs
I’ve previously shared a more in-depth conversation about how donor-advised funds (DAFs) can serve as a base camp for your charitable strategy. To quickly recap: A DAF allows you to contribute cash or appreciated assets to a sponsoring organization (like a community foundation or financial institution), receive an immediate tax deduction, and recommend grants to qualified charities over time. Your assets are owned by the fund once transferred, where they can grow tax-free over time, until you’re ready to have them distributed to your charity of choice.
While you don’t have full legal control over the fund, you do retain advisory privileges and flexibility in terms of timing your grants.
Factors to Consider When Choosing
Not sure which option would better suit your family? Let’s take a closer look at a few factors that might help sway your decision one way or the other.
#1: Control and Governance
If maintaining full control over how and when charitable dollars are invested and distributed is a top priority, a private foundation gives you that authority. You can hire staff, set your own grant guidelines, and take on a more prominent public role (if you desire).
With a DAF, you’re acting in an advisory capacity. The sponsoring organization technically owns the assets, though in practice, most recommendations are approved unless they don’t meet IRS guidelines. Depending on how much control you’d like to retain, this level of involvement may feel sufficient.
#2: Cost
Private foundations can be expensive to start and maintain. Legal setup, tax filings, governance meetings, and recordkeeping all take time and are costly. If your foundation holds complex assets or employs staff (as most foundations do), it could incur significant ongoing fees and costs as well.
DAFs are relatively low-cost to open (often free), with administrative and compliance functions handled by the sponsoring organization. Keep in mind that most DAFs have minimum investments to start and will likely incur ongoing management fees. Unlike a private foundation, however, there’s no need to form a new entity or hire outside help unless your giving strategy becomes particularly complex.
For comparison, the average ongoing administrative and/or management fees for a private foundation are around 4% per year and 0.85% for DAFs.¹
#3: Timeframes
Private foundations are often designed to exist in perpetuity, enabling families to pass their philanthropic values and decision-making power down through generations. While this strategy can certainly be used to build a robust family legacy, it also requires quite a bit of long-term planning and interest from future family members to stay involved. It’s worth noting here that a private foundation is required to distribute at least 5% of its net asset value annually.
DAFs offer more flexible timeframes, and they are not subject to annual required grant distributions (as private foundations are). While they can be used as part of your legacy planning, it’s up to you how long you’d like to keep funding your DAF. You decide whether to distribute the account in its entirety over a specific timeframe or pass advisory privileges on to your heirs. For families who value flexibility or aren’t ready to commit to a multigenerational structure, DAFs may be a better fit.
#4: Tax Benefits and Considerations
Private foundations typically offer a lower ceiling cap for those interested in itemizing and taking advantage of the charitable giving deduction. You may deduct up to 30% of your adjusted gross income in any given tax year for donations made to a private foundation. If you’re donating stock, real estate, or other appreciated assets, the deduction limit drops to 20%.¹
By comparison, you may contribute and deduct up to 60% of your adjusted gross income to a DAF. The deduction limit for donating appreciated stock to your DAF is 30%.¹
In both cases, donating appreciated stock does enable you to bypass the capital gains tax normally required when selling investments and other assets.
Which Path Fits Your Family
If you’re looking for flexibility, low cost, and simplicity, a DAF may be the right place to start. If you want lasting control, visibility, and the ability to shape a multigenerational philanthropic mission, a private foundation may be worth the investment.
Either way, your goal stays the same: Using your resources to uplift the causes you care about in a way that aligns with your values, time, and long-term goals.
As you continue weighing the pros and cons of each option, I’d be happy to talk through this decision together.
Sources:
¹http://www.nptrust.org/donor-advised-funds/daf-vs-foundation/
