Giving Vehicle Comparison

Foundations are powerful giving vehicles but can be costly and time-consuming to maintain.

NPT can help you convert your foundation to a donor-advised fund account with less overhead, improved tax deductions and increased grant flexibility. Your foundation administrators can act as advisors and successors to the account in perpetuity. You can even keep the name of your foundation intact. Alternatively, donor-advised funds can complement your private foundations. Learn how you can use them together to maximize your tax benefits and achieve your philanthropic goals. (Jump to DAF Advantages and Limitations.)

 Donor-Advised FundsPrivate Foundations
Start-Up TimeImmediateCan take several weeks or months
Start-Up Costs
NoneLegal (and other) fees are typically substantial
Ongoing Administrative and Management Fees
85 basis points (0.85%) or less, plus investment management feesCan be in the range of 250-400 basis points (2.5% to 4% per year)
Tax deduction limits for gifts of cash
60% of adjusted gross income30% of adjusted gross income
Tax deduction limits for gifts of stock or real property
30% of adjusted gross income20% of adjusted gross income
Valuation of gifts
Fair market valueFair market value for publicly-traded stock, cost basis for all other gifts, including gifts of closely-held stock or real property
Required Grant Distribution
NoneMust expend 5% of net asset value annually, regardless of how much the assets earn
Excise Taxes
None1% to 2% of net investment income annually
PrivacyNames of individual donors can be kept confidential if desired, and grants can be made anonymously.
Must file detailed and public tax returns on grants, investment fees, trustee names, staff salaries, etc.
Administrative ResponsibilitiesRecommend grants to favorite charitable causesManage assets, keep records, select charities, administer grants, file state and federal tax returns, maintain board minutes, etc.

DAF Advantages and Limitations

Number
1
Start-up and Administration
Number
2
Donor Control and Grantmaking
Number
3
Taxes and Investments
Number
4
Payout
Number
5
Privacy
Number
6
Legacy
Donors can establish a DAF immediately at a low cost; charitable sponsors require the donors to complete an application and make an initial contribution. Minimum contributions for DAFs can begin around $5,000, although many start at $25,000. This stands in stark contrast to private foundations, which can take months to establish and require significant time and financial investment, due largely to legal fees.
Once established, DAF charitable sponsors handle all administrative work, including managing investments, recordkeeping, tax receipting and grant administration. This allows the donor to focus on their charitable goals. A private foundation, by contrast, must hire staff or ask outside advisors to manage the varied administrative work and tax matters for the foundation. They must also form a board, hold board meetings and record minutes, file state and federal tax returns, and perform other governance duties, sometimes at great expense.
Donor control is one of the key differentiators between DAFs and other giving vehicles. When donors make contributions to their DAFs, they are gifting those assets irrevocably to a public charity. Once accepted, the sponsoring charity owns them in their entirety.
The term donor-advised fund is reflective of this relationship: donors have only advisory privileges to grant the assets in their DAF, and the charitable sponsor has the authority to approve or deny those recommendations. Private foundations do not have this kind of restriction, allowing donors to control grants to qualified charities.

Like most other charitable giving vehicles, there are restrictions on which organizations qualify as eligible recipients for DAF grants. For example:

  • Donors cannot recommend that charitable grants be made to individuals.
  • Donors cannot receive any goods or services in exchange for their grant, like a ticket to a gala.
  • Donors cannot recommend that grants pay tuition to private schools or colleges.
  • Similar rules apply for private foundations.

DAFs offer the maximum tax benefits allowed by law. Donors receive an immediate tax deduction when contributing to their DAF. Tax deduction limits for DAFs can be between 30% and 60% of adjusted gross income (AGI), depending on the type of contributed assets, while limits for private foundations can be between 20% and 30% of AGI.

Contributions to DAFs receive fair market value deductions, whereas gifts of certain assets—including closely held stock or property—receive a cost-basis deduction when contributed to a private foundation.

There are no excise taxes on DAFs and, like other philanthropic vehicles, they can help donors avoid tax on capital gains. Of course, each individual tax situation is different, which is where advisors can play an important role in helping donors decide which is the best giving vehicle for them.

Investment offerings for DAFs vary widely among charitable sponsors. The assets in DAFs legally belong to the charitable sponsor, so they assume all the risk related to managing and investing the assets. This arrangement also means that donors could have less flexibility in selecting investments.

Some charitable sponsors provide only a few investment offerings, while others allow donors and their financial advisors to create a charity-approved more customized portfolio. Private foundations, alternatively, offer donors full control over how the assets are invested and the entity is governed within the confines of the law.

Invested DAF assets can grow tax-free, which means that over time—and with positive returns—more assets are available for charitable purposes than what was originally contributed. Assets inside DAFs in the U.S. increased by almost 11 percent from 2014 to 2015. This growth is attributable primarily to significant new contributions to DAFs (even netting out grants), but also to strong stock performance in 2015.

One of the most attractive benefits of DAFs is the fact that do not face restrictions on when their assets must be distributed. In general, DAFs have a payout rate that is consistently above 15%. Private foundations hover around 5%, which is the legal payout federal mandate.
Many DAF charitable sponsors have suggested minimum payouts. National Philanthropic Trust’s policy is that donors must actively make grants at least once every three years.
DAFs are the only charitable giving vehicle that allows donors to make grants 100% anonymously. When charitable sponsors administer grants on behalf of their donors, the charity is legally distributing its own assets, which means donors can choose to remain anonymous.
Some donors choose to name their DAF after their mission (e.g. the “Fund for Early Education) instead of after themselves (e.g. the “John Doe Fund”). This allows a donor’s DAF to be recognized publicly instead of being recognized using the person’s or family’s name. Private foundations, by contrast, must file annual reports that disclose members of their board, grant recipients, and other information that prevents them from remaining anonymous.
How an individual DAF will be advised in the future is determined by the charitable sponsor’s policies on succession planning. Some allow the donors to advise for only one generation, thereby passing the control of the DAF to the sponsoring charity after the death of the original donor. Others, like National Philanthropic Trust, permit donors to appoint successors who receive the full advisory privileges on the original donor’s death, allowing the DAF to exist in perpetuity.
Similarly, most private foundations can be passed down through generations to ensure a family’s charitable giving legacy. However, some private foundations choose to pay out the entire corpus during the life of the original donor.
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Find out about other charitable giving vehicles.