We’ve dedicated this quarter to supporting advisors who want to help their HNW clients’ philanthropy thrive—and there’s no better charitable vehicle than a private foundation. While donor-advised funds (DAFs) are often recommended to clients who want to make fast, easy grants to public charities and get a tax deduction for their appreciated securities, DAFs have some limitations. In fact, they may be underwhelming for sophisticated clients who are looking for strategic, entrepreneurial and catalytic philanthropy because they simply don’t offer the same flexibility and control of a private foundation. Here are four things philanthropists can do with a private foundation that are virtually impossible to achieve with a DAF.
#1: They Can Create an Awards Program
Did you know that the Nobel Prize and Pulitzer Prize have been private funded for years? Clients can start their own awards program to honor past accomplishments, create a legacy, spur innovation and raise standards in a specific field, like science or journalism. For example, a retired molecular biologist establishes an annual awards program to further the field of genomics, inviting applicants to submit bold proposals that can lead to scientific breakthroughs.
#2: They Can Secure Naming Rights
Because foundations are legal entities and exist in perpetuity, they’ve long been used to make grants in exchange for naming rights. They provide a party to the contract that will endure beyond the donor’s death to monitor the terms of the naming agreement. For example, a business owner underwrites the restoration of a public landmark in his hometown with a philanthropic gift. A gift agreement is drafted between the business owner’s foundation and the grantee charity, specifying that the building be named after the donor’s grandfather.
#3: They Can Build A Celebrity Brand
For your high-profile clients who want a philanthropic platform to build and enhance their personal brand, a private foundation is the perfect tool. By establishing a foundation, it’s a public way for celebrities to link themselves to a charitable mission they’re passionate about—and perhaps pick up some good PR along the way. For example, an actress creates a foundation to fund initiatives that provide job training to single mothers.
#4: They Can Grant Directly to Individuals
Often times, philanthropists want to help people in need by providing a grant directly to individuals and families for emergency relief or hardship assistance in circumstances such as illness or unemployment. A foundation can make such grants whereas DAFS are required to gift through nonprofit organizations. For example, during the early stage of the COVID-19 pandemic, one foundation made more than 500 grants to people out of work in the area where the foundation’s owners had operated a business for four generations. In these cases, 100% of the grant goes to the intended recipients, minimizing the costs and time associated with giving through an intermediary.
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