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By: JASON E. STEPHENS, CFP®, ChFP®
Senior Vice President-Investments
UBS Financial Services
DLC Planning Giving Committee Member

Donor-Advised Funds Versus Private Foundations

If you are, or are planning to become, one of the millions of Americans who will contribute to charity this year, there are several ways to ensure that you reduce your tax liability through giving.

One of the most innovative wasy of giving is through a donor-advised fund (DAF), a separately-identified fund or account that is maintained and operated by a section 501(c)(3) charitable organization.

Donor-advised funds are becoming an increasingly attractive option for individuals, families and organizations looking for alternatives to direct giving or private foundations. They are usually offered by foundations, mutual funds groups, other financial firms and universities, which often partner with a charity on the offering.

The benefit donors receive from using donor-advised funds include the ability to donate a wide variety of assets, an immediate tax deduction, flexible grantmaking and the opportunity to create a legacy. The charitable assests can be passed on to future generations to oversee and/or can be given directly to charitable organizations.

Since the contributions are being made to a public charity, the donor receives an immediate tax deduction, including a deduction for a cash donation of up to 50% of the donor’s adjusted gross income. (AGI), or a deduction for securities and other appreciated assests of up to 30% of his or her AGI.

Leave a Legacy with a Private Foundation

Private foundations offer a more traditional approach to giving. With a private foundation, donors establish a private grantmaking giving vehicle formed as a trust or corporation and that generally receives most of its funding from one source, such as a family.

There are several tax advantages to having a private foundation, including the fact that no capital gain is realized when appreciated property is donated to the foundation. Donors may also claim a charitable deduction for the full market value of appreciated stock held in publicly traded companies.

When selecting a charitable vehicle, keep in mind that with donor-advised funds, you do not control the workings of the fund – the fund administrator actually makes the grants. As a donor, you may provide suggestions about the distributions, the institution makes from the fund, but your recommendations are considered as advisory only. While most suggestions are followed by the administating charity, they are not obligated to do so.

In contrast, donors in private foundations can create their own board, pick investments from across the financial industry and give equally to foreign and domestic charities.

When comparing the two structures, it is important to realize that the DAF and a private foundation can also complement each other. For example, the DAF and a private foundation can work together to fund anonymous grants, facilitate donations of special assets, and simplify international grant making and operational administration.

For more information to help you decide the right vehicle for charitable giving and how that can benefit the David Lawrence Centers, call 354-1416.

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