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For many high net worth families, charitable giving is an integral part of an effective estate plan. Two vehicles stand out as the most common long-term options for families looking to structure that giving strategically: the donor-advised fund and the private foundation.

Both allow donors to contribute assets, receive a tax deduction, and direct funds toward charitable causes over time. But they differ significantly in how they are structured, how much control they give the donor, what they cost to establish and maintain, and how they fit into a broader estate plan. At Sessa & Dorsey, we are increasingly meeting with families who have more complex assets to determine whether a private foundation might serve them better than a donor-advised fund. In this post, we will walk through how each vehicle works, how they compare, and how to think about which one is right for your family.

How a Donor-Advised Fund Works

A donor-advised fund (also known as a DAF) is an account held within a sponsoring organization, typically a financial institution or community foundation, that allows donors to contribute assets, receive an immediate tax deduction, and recommend grants to charitable organizations over time. The sponsoring organization holds legal control of the assets, while the donor serves in an advisory capacity, recommending how funds should be invested and distributed.

DAFs are well suited to families who value simplicity. There is no legal entity to establish, no board to assemble, and no annual filings to manage. A donor can open one quickly, often within a day, and begin recommending grants almost immediately. Initial funding minimums are typically low, often starting between $5,000 and $25,000 depending on the sponsoring organization.

From a tax perspective, DAFs offer meaningful advantages. Cash contributions are deductible up to 60% of adjusted gross income, while contributions of appreciated securities are deductible up to 30% of AGI. Assets inside a DAF can grow tax-free, increasing the amount ultimately available for charitable purposes. For a deeper look at the benefits of donor-advised funds, see our post on 3 Benefits of a Donor-Advised Fund as a Charitable Giving Strategy.

How a Private Foundation Works

A private foundation is an independent 501(c)(3) legal entity, typically structured as a nonprofit corporation or charitable trust, established and governed by the donor or the donor’s family. Unlike a DAF, a private foundation gives the donor direct control over grantmaking, investments, and operations. The donor establishes the board, sets the mission, and makes all charitable decisions, subject to IRS regulations.

Private foundations are generally recommended when initial funding is at least $1 million, with the structure becoming more practical as assets exceed $10 million. Establishing one requires state incorporation, a federal application for tax-exempt status, and the involvement of legal and financial professionals, a process that typically takes several weeks to several months to complete.

That level of control comes with significantly greater administrative and compliance responsibility:

• Private foundations must distribute at least 5% of their endowment to qualified charitable organizations every year
• Annual returns (Form 990-PF) are filed with the IRS and subject to public disclosure, including all financial transactions and grants
• Corporate formalities must be observed and records maintained
• Excise taxes may apply in certain circumstances

Donor-Advised Fund vs. Private Foundation: 7 Key Differences

1. Control. In a DAF, the donor advises on which organizations receive funds but cannot assign them directly; while recommendations are almost always followed, the sponsoring organization has the final say. In a private foundation, the family decides directly, with no intermediary involved.
2. Cost and complexity. DAFs are straightforward and relatively inexpensive to establish. Private foundations require legal and financial professionals to set up, carry ongoing compliance obligations, and involve administrative costs that grow with the complexity of the foundation’s activities.
3. Tax treatment. Both vehicles provide income tax deductions, but the limits differ. DAF contributions are deductible up to 60% of AGI for cash and 30% for appreciated assets. Private foundation contributions are subject to lower limits: 30% of AGI for cash and 20% for appreciated assets.
4. Privacy. DAF donors and their advisors are generally anonymous, and grantees can be kept confidential. Private foundations file detailed annual returns that are subject to public disclosure.
5. Flexibility. DAFs have no required annual distribution, allowing the donor to take an immediate tax deduction and recommend grants on their own timeline. Private foundations must distribute at least 5% of their endowment each year, which introduces a planning obligation but also ensures ongoing charitable activity.
6. Investment opportunities. DAFs are generally limited to publicly traded securities and the investment options offered by the sponsoring organization. Private foundations can hold a broader range of assets, including real estate, private equity, and closely held business interests, giving families with complex portfolios greater latitude over how charitable assets are managed and grown.
7. Lifespan and succession. A DAF typically lasts through the donor’s lifetime, with most sponsoring organizations permitting one or two succeeding generations of advisory control. A private foundation can exist in perpetuity, making it a vehicle for lasting family legacy across multiple generations.

Which Charitable Giving Vehicle Is Right for Your Family?

A DAF tends to be the better fit when:

• The family wants to give strategically without the responsibilities of running an independent charitable organization
• Charitable assets consist primarily of cash or publicly traded securities
• Speed and simplicity are priorities
• Privacy is important

A private foundation tends to be the better fit when:

• Charitable assets include real estate, private equity, or closely held business interests that a DAF cannot easily accommodate
• The family has a multigenerational philanthropic vision and wants younger members formally involved in governance and grantmaking
• The family wants to create a lasting institution of charitable giving rather than an account
• Funding exceeds $10 million, at which point the administrative costs of a foundation become proportionally reasonable

Funding level is a useful guideline, but not a hard rule. A family with complex illiquid assets and a long philanthropic horizon may find a private foundation the right fit even below the $10 million threshold. Likewise, a family well above it with straightforward giving goals may be better served by a DAF.

Can You Use a Donor-Advised Fund and a Private Foundation Together?

A DAF and a private foundation are not mutually exclusive. Many high net worth families use both vehicles to serve different philanthropic and planning goals.

A family might maintain a private foundation as the institutional core of its charitable legacy, while individual family members also maintain their own DAFs for more personal giving decisions. A DAF can also serve as a vehicle to receive a private foundation’s required 5% annual distribution, particularly when the foundation has not yet identified specific grantees for the year.

Building a Charitable Giving Strategy That Fits Your Estate Plan

Whether a DAF, a private foundation, or a combination of both makes sense for your family depends on the scale of your philanthropic goals, the nature of the assets involved, the degree of control you want, and how central charitable giving is to your long-term legacy. Both vehicles can also be coordinated with retirement account planning as part of a comprehensive charitable strategy.

At Sessa & Dorsey, we work with families to evaluate both options in the context of their full estate plan, coordinating with financial and tax advisors to ensure the structure chosen serves both philanthropic and financial goals.

If you would like to discuss charitable giving options and how they fit into your estate plan, contact Sessa & Dorsey at (443) 589-5600 or schedule a consultation.