Considering the differences between a private foundation and a donor-advised fund (DAF)? It’s possible to simplify philanthropy without sacrificing the impact. Download our detailed guide to see why American Endowment Foundation (AEF) donor-advised funds are an excellent vehicle for charitable giving, especially when compared to private foundations, and view some of the key takeaways below.

 

Download the Private Foundations vs. DAFs Comparison Sheet

 

Private Foundations vs. DAFs: Similarities

Obviously, private foundations and DAFs are both used for philanthropic purposes. They share only a few similarities beyond that. Both offer fair market value for the valuation of publicly traded securities contributed. Also, they can both exist in perpetuity if desired by the parties involved. Finally, both can allow for a financial advisor to manage the investments – although this is often limited with other DAF sponsors, it is completely acceptable with a DAF from AEF.

Private Foundations vs. DAFs: Major Differences

There are quite a few differences between establishing a DAF vs. a private foundation. Some factors to consider include:

  • DAFs have a higher income tax deduction (60% of adjusted gross income in cash; 30% for appreciated assets) compared to private foundations (30% for cash; 20% for appreciated assets).
  • DAFs do not have a tax on investment income, whereas private foundations are taxed at 1.39% of income and realized gains.*
  • DAFs can be established relatively quickly, possibly in less than one day, while setting up a private foundation is an arduous process that requires IRS approval.
  • Private foundations are costly to set up with high service fees, legal fees, and additional expenses.

While there may be personal or philanthropic reasons a donor wants to choose one over the other, it’s worth considering the drawbacks of private foundations for charitable giving.

Some donors have even taken to converting private foundations to DAFs because of the significant advantages DAFs provide. Establishing a DAF at AEF offers additional advantages as well. For instance, AEF DAFs typically have no set-up fees and low administrative fees. AEF also performs DAF accounting, manages the DAF’s IRS compliance, manages grants, and more.

Make The Right Choice for Your Charitable Giving

Discover the simplicity and efficiency of AEF donor-advised funds today. AEF’s goal is expanding philanthropy – and we want to help donors do it in the easiest way possible. Compare DAFs and private foundations to see how establishing a DAF with us is an easy process compared to the complexity of setting up and maintaining a private foundation. Whenever you’re ready to talk, reach out to AEF and we’ll answer any questions you have.

*Certain investments in DAFs and private foundations may be subject to unrelated business income tax (UBIT). Contact AEF or your tax advisor for more information.