How does a private foundation differ from a donor advised fund?
They differ both in control and flexibility. Contributors to a donor advised fund make irrevocable contributions to a nonprofit organization that administers the fund and makes decisions regarding fund investments. Contributors may recommend eligible charities as recipients for grants, but the fund’s governing body is free to accept or reject the recommendations. With a private foundation, there is greater flexibility and control. Private foundations can typically accept and hold a much wider variety of assets, such as 144 restricted stock and hedge funds, and the founder retains control over how the assets are invested. In addition, the founder retains control over the charitable donations and other foundation disbursements. Foundations are also able to hire staff, reimburse expenses, and set up structured giving programs, such as scholarships.
A donor advised fund is a program of an Internal Revenue Code Section 501(c)(3) public charity that allows you to make an irrevocable contribution and then recommend grants to qualified nonprofit organizations. As a donor you can make recommendations concerning investment allocation and grant distributions. However, ultimate decision-making authority resides with the charity’s board. A private foundation is a private nonprofit organization, also defined under Internal Revenue Code Section 501(c)(3), established and managed by you and your board. In practice, the two giving vehicles can accomplish many of the same goals. The most significant differences are that donor advised funds involve less administration at start-up and on an ongoing basis, while private foundations provide ongoing control by you and your designee and can have more flexibility in terms of their operational restrictions. In addition, the tax benefits for a private foundation and donor advised fund vary. For more inf
