Donor Advised Fund or Private Foundation?

Donor Advised Funds (DAFs) and private foundations offer similar ways to support charitable causes while gaining valuable tax deductions.

Each permits donations of non-cash assets, such as stocks and bonds, real estate, annuities, and life insurance. Private foundations permit greater flexibility for their founders while DAFs provide greater privacy and larger tax deductions.

To establish DAF at Capstone Legacy Foundation, you can make an irrevocable gift to a special account named according to your choice. This gift can provide a one-time tax deduction as long as it doesn’t exceed 60% of your adjusted gross income. Gifts of long-term appreciated securities can be deducted up to 30% of adjusted gross income. If you are not able to get your full deduction in a single year, you typically have five years to claim the unused deductions.

Funds in your DAF can be gifted to any IRS-qualified charitable, religious, educational, scientific, and health related activities that align with kingdom values. While the original gift to your fund is irrevocable, you determine how these funds will be used and which charities to support.

One of the main benefits of using a DAF, as opposed to a private foundation, is that DAFs permit complete privacy. Your identity as the donor does not have to be disclosed.

Funds in your DAF can be invested with an asset manager to grow without incurring federal income tax. The money you give can stay in the fund, growing tax-free for future gifting at your choice, or your heirs.

DAFs can be set up quickly and easily and with little expense.

A private foundation by contrast is a non-profit, non-governmental organization created to support charitable causes that operates as in independent organization.

Because private foundations require their own legal, accounting, and back-office support, they generally require much more money and effort to establish and keep running.

Private foundations are more expensive to establish, and they permit less of a tax deduction than DAFs. The tax deduction in a private foundation is limited to 30% of the donor’s adjusted gross income for cash gifts. Gifts of long-term appreciated securities can be deducted up to 20% of adjusted gross income.

To further discuss these and other issues related to Donor Advised Funds, please contact Capstone Legacy Foundation: