Giving vehicles: DAFs vs Foundations
In this article, we outline the major differences between DAFs and foundations, to help you decide which giving vehicle is right for you.
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DAFs are tax-efficient giving vehicles which offer several advantages, including considerable flexibility, over traditional options like private foundations (independent legal entities set up by individuals, families, or corporations for charitable purposes). Because of these advantages, we believe a DAF can be an ideal way to do your giving.
The differences between DAFs & Foundations
Explore the table below to uncover the major differences between giving via a DAF and giving via a foundation:
DAF | Foundation | |
Size | Minimum opening balance typically ranges from $0-$25,000 | Best suited for $10m+ |
Set-up | No barrier to entry; opening a DAF is quick & easy | Setting up a foundation requires time, money, and resource:
|
Admin | Minimal admin: DAF providers vet charities & make grants on your behalf | A significant level of admin is required to maintain your foundation. You will need to:
|
Fees | Typically 0.85% or less, based on your account balance, plus investment management fees |
|
Taxes (US) |
|
|
Spend down | Usually an inactive policy that states you must grant at least every 1-2 years, with no spend down requirements | Must give 5% per year |
Grants | Cannot grant to individuals; must grant to public/private charities | Can grant to individuals facing hardship |
Investments | Less flexibility, but existing financial advisor can manage assets | Work with own funds and with an investment advisor |
Advisors | Can have several advisors in addition to the donor | Family members and others can serve as paid administrators and paid board members |
Successors | Can name several successors (and give each a different %); must be 18 or older | Should define a succession plan for continued decision making and leadership transition |
Anonymity | Can be anonymous | Donations are public via 990 reports |
DAF
Minimum opening balance typically ranges from $0-$25,000
No barrier to entry; opening a DAF is quick & easy
Minimal admin: DAF providers vet charities & make grants on your behalf
Typically 0.85% or less, based on your account balance, plus investment management fees
- 60% of your adjusted gross income for cash contributions
- 30% of your adjusted gross income for other contributed assets (e.g. stock, property)
- Gifts of appreciated securities with long-term holding periods are valued at Fair Market Value (FMV)
Usually an inactive policy that states you must grant at least every 1-2 years, with no spend down requirements
Cannot grant to individuals; must grant to public/private charities
Less flexibility, but existing financial advisor can manage assets
Can have several advisors in addition to the donor
Can name several successors (and give each a different %); must be 18 or older
Can be anonymous
Foundation
Best suited for $10m+
Setting up a foundation requires time, money, and resource:
- You will have to file paperwork to establish a 501(c)(3), employ an attorney & recruit board members
- Working with your financial, tax & legal advisors can help avoid common errors & maximize the benefits of the foundation structure
A significant level of admin is required to maintain your foundation. You will need to:
- Hold annual meetings
- Record minutes
- Manage assets
- Select charities
- Administer grants
- File state & federal tax returns
- Pay excise tax on net investment income
- Keep records
- Stay abreast of the ever-changing requisite IRS requirements & filings
- 2.5-4% per year, covering legal, accounting, payroll & audit costs
- Excise tax on 1.39% of net investment income annually
- 30% of your adjusted gross income for cash contributions
- 20% of your adjusted gross income for other contributed assets (e.g. stock, property)
- Gifts valued according to Fair Market Value (FMV) for publicly-traded stock, and on a cost basis for all other gifts, including closely-held stock or real property
Must give 5% per year
Can grant to individuals facing hardship
Work with own funds and with an investment advisor
Family members and others can serve as paid administrators and paid board members
Should define a succession plan for continued decision making and leadership transition
Donations are public via 990 reports
Maximize your impact with a DAF
As you can see, while foundations offer complete control for the donor, they can be time-, resource-, and cost-intensive to establish and maintain. DAFs on the other hand are quick and easy to set up, and put minimal admin burden on the donor.
By taking the hassle out of giving, a DAF affords you more time and energy to develop a giving strategy and decide where to give. Since some charities are up to 1000x more effective than others, at Founders Pledge we believe finding and funding the most impactful is how to do the most good possible.
Our comprehensive giving services and team of experts are on hand to support you at every stage of your giving journey. While we handle the logistics and due diligence of grant-making from your DAF, you can take advantage of our in-house research and high-impact giving recommendations, collaborate with one of our philanthropic advisors to develop a personalized giving portfolio aligned to your values, and attend thought-provoking events with fellow entrepreneurs and change-makers around the globe. All in service of empowering you to maximize your philanthropic impact.
Find out more about the Founders Pledge DAF, and reach out to your Community Manager if you're ready to open one.
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Founders Pledge cannot provide tax advice and the above is not intended as such. Please consult with your tax or financial advisor for a full understanding of what moving money into the charitable sector (including using a DAF) means for you.
