Private Foundation vs. Donor-Advised Fund: It’s Not Either/Or

When you’re helping a client plan their charitable legacy, one of the first strategic decisions is structural: should they establish a private foundation, open a donor-advised fund (DAF), or perhaps use both?

Both vehicles offer valuable benefits, and each comes with its own considerations. Yet many clients—and sometimes even their advisors—hold outdated or incomplete understandings of how donor-advised funds and private foundations compare. At the community foundation, we often work alongside attorneys, CPAs, and financial advisors to help assess the best fit based on your client’s values, goals, and long-term vision for impact.

To support your work, we’d like to unpack three persistent myths about DAFs and private foundations—and offer insights into how these giving structures can complement each other.

Myth 1: Donor-Advised Funds Are One-Size-Fits-All

It’s easy to think of donor-advised funds as inflexible or overly simplistic. In contrast to private foundations—with their formal structure, governance, and visibility—DAFs are sometimes misunderstood as little more than basic grantmaking accounts.

In reality, DAFs offer a surprising amount of flexibility and customization. A donor-advised fund is not an organization—it’s an account offered through a sponsoring entity like a community foundation or a national financial institution. That means its effectiveness largely depends on the sponsor’s approach, service model, and engagement opportunities.

At a community foundation, DAFs provide far more than transactional convenience:

Tax Efficiency and Flexibility: Clients can contribute cash or appreciated securities and receive an immediate tax deduction—while taking their time to recommend grants to charitable organizations.
Local Knowledge: Unlike national institutions, community foundations offer deep insight into the needs of your region and the nonprofits making a difference. Our philanthropic advisors help clients learn, connect, and give with purpose.
Multi-Generational Engagement: DAFs can be structured to include children and grandchildren in future grantmaking. Our team can help design a legacy plan that includes family values, charitable goals, and succession guidelines.
Custom Grantmaking Support: We support strategic philanthropy by helping clients vet nonprofits, explore giving strategies, and even engage in collaborative initiatives with other fundholders.

DAFs are anything but one-size-fits-all. With the right partner, they can be tailored to reflect the unique character and intent of every donor.

Myth 2: The Decision Depends Mostly on Asset Size

A common assumption is that private foundations are appropriate for high-net-worth individuals, while DAFs are best suited for smaller-scale givers. However, while size might factor into administrative convenience or complexity, it shouldn’t be the deciding element.

Here’s why:

There’s No Upper Limit for DAFs: Some of the largest DAFs in the country have assets well into the billions. The public may not see their individual 990s, but their philanthropic impact is enormous.
DAFs Often Offer Better Tax Treatment: For clients donating appreciated assets like real estate or closely held stock, DAFs typically allow for a full fair-market-value deduction, while foundations often require a cost-basis deduction. DAFs also provide higher AGI deductibility limits—up to 60% for cash and 30% for appreciated securities.
Cost and Simplicity: Private foundations are standalone legal entities, which means legal fees, accounting requirements, mandatory filings, and board governance—all of which add cost and complexity. DAFs are simpler and often more cost-effective, particularly for clients who want to focus on giving, not compliance.
Privacy and Anonymity: Foundations are required to disclose their activities publicly. In contrast, grants from a DAF can be made anonymously—an appealing feature for clients who prefer discretion.

The key takeaway? Asset size is just one of many factors—and often not the most important one. Instead, focus on what your client wants to achieve with their philanthropy and how hands-on they wish to be in the administration.

Myth 3: Donor-Advised Funds and Private Foundations Are Mutually Exclusive

Too often, advisors and clients think they must choose between a DAF and a private foundation. In truth, many families use both vehicles together to meet different needs at different stages.

Here are just a few examples of how they can complement one another:

Balancing Public and Private Giving: Clients may want to make highly visible gifts through a foundation while using a DAF for anonymous or discreet giving.
Smoother Asset Transfers: Some assets—like real estate or private business interests—are difficult to donate to a private foundation due to self-dealing and valuation rules. DAFs are better positioned to accept these complex gifts, maximizing tax benefits.
Succession and Sustainability: A DAF can provide continuity if a private foundation becomes burdensome or if heirs are less inclined to manage a full-fledged entity. Some families even choose to sunset their foundation and transfer its assets into a DAF to maintain their charitable legacy with less administrative effort.
Diversified Grantmaking Strategies: Private foundations are subject to annual payout requirements and excise taxes. Using a DAF alongside a foundation allows families to maintain consistent giving levels across economic cycles while optimizing tax and investment strategies.

For many clients, DAFs serve as a valuable tool to enhance or eventually transition their private foundation’s mission. Rather than thinking of these structures as competitors, think of them as companions in a broader philanthropic plan.

How the Community Foundation Supports Advisors and Their Clients

We work closely with advisors to help clients clarify their charitable goals, evaluate their options, and design giving plans that are both strategic and meaningful.

When you work with the community foundation, your clients gain:

Personalized philanthropic advising
Trusted nonprofit research and vetting
Support for complex or multi-generational giving
A streamlined administrative experience
Deep local knowledge and impact measurement

Additionally, you gain a collaborative partner who can augment your services, support your client relationships, and help you deliver comprehensive, values-based planning.

Let’s Find the Right Fit—Together

Every charitable plan is unique. Whether your client is drawn to the structure of a foundation, the simplicity of a donor-advised fund, or a combination of both, we’re here to help you make the most informed decision.

Reach out to the team at the community foundation to discuss how we can support your client’s goals—philanthropic, financial, and legacy-driven.

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