Private funds have long dominated the world of charitable giving by America’s wealthiest citizens.
Most people have likely heard of the MacArthur Fund or the Carnegie Foundation, which have long histories and exceptionally strong public footprints. Less well know are donor-advised funds. Despite standing outside of the spotlight, DAFs are now the primary vehicle for wealthy Americans to fund charitably activities.
Private foundations are legally separate from their founders. In distinction to public charities they are funded by the establisher’s funds, rather than donations solicited from outside. The main establishing party retains full control, naming board members and determining charitable priorities and strategy. When the key donor dies, control passes to his or her heirs.
DAFs are different. They are usually founded under the aegis of an existing private charity, in partnership with investment companies that market the fund to their customers. In contrast to private foundations, the key donor does not run the show in terms of setting priorities for charitable investment or overall financial strategy. However, the main contributors do retain an advisory role in the full process.
There are many reasons why wealthy philanthropists are turning to DAFs for their charitable activities. Foremost perhaps is the tax advantage: a greater deduction from gross income is allowed compared to the case of private foundation. Greater deductions are allowed as well, and any earnings within the fund are tax free.
Private foundations are legally required to make a defined annual contribution toward targeted charitable activities. This makes sense at first glance, but there are years where opportunities are limited and others where the need is great and extra funds would come as a boon. DAFs have no minimum yearly disbursement requirements, giving donors much greater flexibility in choosing the target, time and amount of their charitable giving.
For more information, please read:
DAFs vs. Private Foundations: How the Wealthy Engage in Philanthropy | Wealth Management