The Best of All Possible Worlds – Private Foundations and Donor-Advised Funds

Combine a private foundation with a donor-advised fund for philanthropic and financial synergy.

When families and their advisors contemplate establishing a charitable vehicle, they often compare and contrast the advantages of private foundations and donor-advised funds (DAFs). However, for many donors, the best choice isn’t either a private foundation or a DAF—it’s both. When used in combination, the advantages of a private foundation and a DAF can be synergistic, providing donors with a full spectrum of options for their philanthropic and wealth-management goals. Here are some of the benefits conferred by using these two popular vehicles in tandem.

Whereas a private foundation offers more control over grants and almost limitless capabilities for out-of-the-box giving, a donor-advised fund enables convenient, anonymous grantmaking. When donors have both vehicles, they have a complete toolkit for achieving their philanthropic goals.

Major Gifts
Making a major gift to a favored charitable project or institution represents a significant commitment. To ensure that funds are used according to their wishes, including naming rights, donors may want to employ a grant agreement, a legally binding document, to reflect the compact’s details with their grantees. Because private foundations are independent legal entities, they can enter into such an agreement, setting forth the purpose, terms, and conditions of their grant, with subsequent payments often tied to progress milestones. This option is usually not available with a donor-advised fund because account holders are not agents of the sponsoring organization and cannot enter a legal contract on its behalf.

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