Blog

A Happier Alternative? Moving from a Private Foundation to a Donor-Advised Fund

With nearly 150,000 private foundations in the United States and collective assets surpassing $1 trillion, it’s no surprise that many clients gravitate toward establishing a private foundation when planning their charitable giving. You may already be advising clients who set up foundations years ago as a way to formalize their philanthropy and involve the next generation.

But as you’ve likely observed, donor-advised funds (DAFs) are surging in popularity—and for good reason. Now nearing 2 million in number and issuing tens of billions in annual grants, DAFs are being used alongside, or even in place of, private foundations by a growing number of philanthropists.

Some of your clients may be actively considering a shift—transferring their private foundation’s assets to a donor-advised fund at the community foundation as a more streamlined and fulfilling way to support their charitable mission. Here’s a practical guide to help navigate those conversations.

Assess the Administrative Burden

Private foundations come with a significant operational load. Compliance, accounting, board meetings, grant documentation, tax filings, and investment oversight all require time, expertise, and energy—often more than families expect when they first get started.

As foundations move into second- and third-generation leadership, these responsibilities can become even more complex. When managing the foundation begins to overshadow its purpose—supporting nonprofit causes—many families begin looking for a simpler solution.

Review the Tax and Legal Considerations

Private foundations are subject to strict IRS regulations, including rules on minimum distributions, self-dealing, and taxable expenditures. Violations—even unintentional ones—can result in penalties.

DAFs, by contrast, are far less complicated to administer and enjoy more favorable tax treatment for certain types of gifts. For example, if a client plans to donate closely held business interests or real estate, a DAF is often a far safer and more tax-efficient recipient than a private foundation. Private foundations must value nonmarketable assets at cost and face more restrictions on business ownership and transactions.

Leverage the Community Foundation’s Support

Our team at the community foundation regularly helps families and advisors transition from private foundations to donor-advised funds. We’re well-versed in the process and can support you every step of the way—from technical requirements to family legacy considerations.

The process typically includes:

A vote by the private foundation’s board to terminate and transfer assets
Setting up a donor-advised fund in the client’s preferred name (e.g., The Smith Family Foundation Fund)
Choosing successor advisors to continue the legacy of grantmaking
Making a grant from the private foundation to the newly established DAF
Leaving a reserve in the private foundation to pay any final expenses
Filing the final IRS Form 990-PF
Completing any required dissolution steps under state law

DAFs at the community foundation are flexible, personal, and designed to reflect the same values and structure as a private foundation—without the administrative burdens.

Preserve Legacy, Gain Simplicity

One common concern for clients is the perceived loss of identity or legacy if they move away from their foundation. However, with a named fund at the community foundation, the client’s brand and philanthropic values can remain front and center.

We work with families to ensure continuity—helping them name successors, involve the next generation, and establish fund guidelines that preserve intent. In many cases, a DAF provides a more engaging and rewarding philanthropic experience because it allows families to focus on impact, not oversight.

Work With the Community Foundation

If your client is managing a private foundation and exploring their options, let’s start the conversation. Whether they’re ready to transition now or are simply gathering information, the community foundation is here to help evaluate the best path forward.

Together, we can help your clients give more strategically, avoid unnecessary complexity, and stay focused on what matters most—supporting the causes they care about.