A private foundation is a legal entity controlled by the founder. By contrast, a donor-advised fund is a giving account legally controlled by the sponsoring charitable organization.
With a private foundation, the donor controls who sits on the governing board and how funds are spent. A donor-advised fund is governed by a board selected by the sponsoring organization. The donor may only “advise” how the donated funds are granted and invested.
With a private foundation, the donor retains total control over where assets are custodied and how they’re managed. With a donor-advised fund, assets are typically limited to the investment pools offered by the sponsoring organization.
A private foundation can be funded with and hold a wide array of assets. Donor-advised funds often limit investment options to cash equivalents and publicly traded securities; other types of assets are typically liquidated upon donation.
You can be reimbursed for expenses incurred while carrying out foundation activities. This includes board meetings, administration, site visits, and legal counsel. Not so with a donor-advised fund.
Private foundations provide a broader array of giving options. Gifts from donor-advised funds are typically restricted to U.S.-based 501(c)(3) public charities. Private foundations may support organizations outside the U.S., establish scholarship programs, run their own charitable activities, make loans and equity investments.
A private foundation can grant directly to individuals in need. Donor-advised funds are not permitted to give grants to individuals.
Private foundations can exist within the control of the family in perpetuity. With a donor-advised fund, the family never has legal control, and advisory privileges often end after one or two generations. After that, the funds revert to the sponsoring organization.
The foundation’s name is on the grant check, and you may hand-deliver it to the recipient organization. With a donor-advised fund, the check bears the sponsoring organization’s name and delivering it in person is not an option because you are not a legal “agent” of the sponsoring organization.
Private foundations may hire and compensate board members and employees, including family members. This is not an option with a donor-advised fund.
Setting up and running a private foundation is now as fast and easy as a donor-advised fund. Foundation Source sets up the foundation in less than a week and handles all administration. Minimum initial funding: $250,000.
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