Private Foundation vs. Donor-Advised Fund

Recently, I was talking with a friend of mine about whether a donor-advised fund was “better” than a private family foundation. The answer to that question is based on one’s personal needs and expectations and it’s individually or a family-based decision.  You need to know the facts.

Did you know…

·         A private foundation is a freestanding legal entity.

·         A donor-advised fund is an account.

·         With a private foundation, you can compensate staff, including family members for their professional services.

·         Donor-advised funds (DAF) generally cannot be converted to a private foundation; however, a private foundation may grant all its assets to a DAF.

·         Scholarships and fellowships maybe given directly to an individual through a private foundation, although through a DAF, an organization must choose the recipients.

·         Foundations are required to pay a 1.39% excise tax on net investment income and realized capital gains, DAFs do not pay an excise tax.  For example, a foundation with a $10,000 of tax liability would pay $139 in excise tax.

Learn more about private foundations and donor-advised funds is this side-by-side comparison provided by Foundation Source at www.foundationsource.com  It is an excellent tool.