Ways to Give: Donor-Advised Funds vs. Private Foundations
When it comes to giving with intention, many individuals and families find themselves deciding between two primary tools: donor-advised funds (DAFs) and private foundations. Both options enable you to support the causes you care about while enjoying tax advantages. But they differ significantly in cost, complexity, and control.
This guide will walk you through the key differences, highlight what makes each option powerful in its own right, and explain why GoFundMe Giving Funds are opening new doors for impact-minded donors—by making donor-advised funds more accessible, flexible, and personal than ever before.
What is a private foundation?
A private foundation is a nonprofit organization typically funded by a single source. Many family foundations fall into this category, allowing families to shape a shared giving vision across generations. These entities are often established with the intent to support charitable causes over time and can operate in perpetuity.
There are two main types:
- Non-operating foundations: Primarily make grants to other nonprofit organizations.
- Operating foundations: Run their own charitable programs (e.g. museums, research institutions).
Benefits of private foundations
- High level of control: Founders have full authority over operations, investments, and grantmaking.
- Legacy planning: Foundations can engage family members across generations and build a long-term philanthropic identity.
- Recognition and influence: Foundations can establish visibility and credibility in the philanthropic space.
Considerations and trade-offs
- Administrative burden: Establishing and maintaining a foundation requires legal counsel, governance, annual tax filings, and often dedicated staff.
- Start-up costs: Typically require $250,000–$1 million to justify the costs of setup and operation.
- IRS compliance: Must distribute at least 5% of assets annually and are subject to excise taxes and strict oversight.
DAFs vs. private foundations: A side-by-side comparison
| Feature | Donor-Advised Fund | Private Foundation |
| Setup time | Minutes | Months (legal incorporation, IRS filing) |
| Start-up cost | Typically $0–$5,000 | $250,000+ recommended |
| Tax deduction limits | Up to 60% of AGI (cash); 30% for appreciated assets | 30% of AGI (cash); 20% for appreciated assets |
| Excise taxes | None | 1.39% annual tax on net investment income |
| Minimum annual payout | None (though active use is expected) | 5% of assets per year (IRS requirement) |
| Grant flexibility | Recommend grants to any IRS-qualified nonprofit | Full discretion (must still meet IRS charitable rules) |
| Administrative responsibility | Minimal (handled by sponsor) | High (legal, accounting, compliance tasks) |
| Privacy | Option to give anonymously | Public disclosures via IRS Form 990-PF |
How DAFs and foundations can work together
While DAFs and charitable foundations are often seen as separate tools for giving, they can interact in specific ways—though with important limitations set by the IRS.
Can a DAF give to a private foundation?
In general, a donor-advised fund cannot make grants to a private non-operating foundation, because DAFs are restricted to supporting public charities as defined by the IRS (typically 501(c)(3) organizations with broad public support). Since most private foundations are not considered public charities, they’re not eligible recipients.
That said, a donor-advised fund may support an operating foundation if it qualifies as a public charity and the sponsoring DAF organization approves the grant. Each grant request is subject to due diligence to ensure it aligns with IRS regulations.
Can a private foundation give to a DAF?
Yes—but with a caveat. A private foundation may contribute to a DAF only if the gift qualifies as a “qualifying distribution”—which means it must be used for charitable purposes and not to satisfy the foundation’s own minimum payout requirement unless the DAF grant is made immediately and exclusively for a specific charitable project.
To avoid compliance issues, foundations typically refrain from making unrestricted contributions to DAFs. Any such grants must include clear documentation of charitable intent, and the DAF must agree to use the funds accordingly.
If you manage a foundation and are exploring donor-advised funds, consult a tax advisor or legal counsel to ensure the gift structure complies with IRS rules.
Why many donors are choosing donor-advised funds
While private foundations offer full control and a prestigious legacy vehicle, the barriers to entry are significant. DAFs offer many of the same benefits with less cost, greater flexibility, and a more user-friendly experience.
DAFs are especially appealing to donors who want to:
- Be more strategic: Set aside funds today and distribute them over time.
- Maximize tax benefits: Contribute appreciated assets and avoid capital gains.
- Give on their schedule: React to urgent needs or plan recurring support.
- Simplify their giving: Consolidate donations, manage records, and generate a single tax receipt.
- Plan for the future: Use a family DAF to create a legacy of giving and involve future generations in philanthropy.
For modern donors looking to be thoughtful and responsive in their giving, DAFs offer unmatched simplicity and power.
How GoFundMe Giving Funds are reimagining DAFs
Traditional donor-advised funds often focus solely on donations to large institutions. With GoFundMe Giving Funds, we’ve built a DAF that’s designed for the way people actually want to give – personal, timely, and impactful.
What sets GoFundMe Giving Funds apart:
- Support qualified nonprofits: Give easily to IRS-qualified charities.
- One simple tax receipt: Keep all your giving organized for tax time.
- Invest for greater impact: Potential to grow your giving balance with tax-free investment options.
- Give from anywhere: Our mobile-friendly platform helps you discover causes and donate in just a few clicks.
Low minimum grant requirement: Whether it’s $5 or $5,000, your gift matters.
“Very easy and fast to use especially compared with my two other DAF experiences”— Carolyn, a GoFundMe Giving Funds user
Give with purpose and confidence
Whether you’re just starting your giving journey or considering how to scale your impact, both DAFs and foundations have their place in philanthropy. But for many modern donors, a DAF provides the best of both worlds: smart tax strategy and heartfelt generosity.
With GoFundMe Giving Funds, you don’t just give—you make a direct and meaningful difference.
Start giving with purpose today.
This content is provided for educational purposes only and does not constitute tax, legal, or investment advice. Any tax-related figures or comparisons are for illustrative purposes. You should consult a qualified financial or tax advisor to evaluate your specific situation. All information is aligned with U.S. tax laws and regulations.