The global pandemic provided a greater appreciation for (and participation in) philanthropy. During the past two years, both new and longtime donors have risen to the occasion to seek ways to help others in this collective time of great need.
During 2020, the U.S. saw a 3.8% increase in overall charitable giving. Early indications are that overall charitable giving in 2021 may have far eclipsed this number, jumping 8.9%, according to a report from Blackbaud.
New givers or those looking to expand their giving may be considering strategies to add structure to their philanthropy and grow the impact of their giving. What’s more, the United States is experiencing one of the most extensive wealth transfers in its history, as those in my parents’ generation leave money to children (or not) and to their favorite charities.
Faced with how and to whom they should leave their money, donors may naturally wonder what kind of charitable vehicle they should use to advance their goals and legacy. Often this is a choice between two popular strategies: Start a family foundation or open a donor-advised fund (DAF).
The choice between a foundation or DAF comes down to how donors value the unique benefits of each option. Which tool is more likely to help someone achieve his or her philanthropic goals and cement their charitable legacy?
Let’s examine some of the benefits donors might look for as they consider the trade-offs between the two charitable-giving vehicles.
A donor-advised fund offers donors any level of privacy they wish to have from the receiving organization. This level of privacy can also change per grant, enabling the donor flexibility on when to be private or not. A DAF provider lists its grantees, but there is no disclosure from which account that grant was requested and approved. With the foundation, each gift is listed on the publicly available Internal Revenue Service (IRS) Form 990 and is tied directly to the foundation’s name – and board of directors.
The bottom line: If you want to avoid prying eyes on your giving – whatever your reason – go with a DAF.
A donor or family acts as a board member for a foundation, holding complete control over investments, grant decisions, selection of additional board members and staff. With a DAF, on the other hand, your gift is an irrevocable gift to the fund provider – i.e., you cede control when you make the gift, retaining only advisory privileges. The DAF provider can – and for requests outside its boundaries will – say no to gifts.
The bottom line: For donors who prize control over all else, the foundation is …….