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Combining Donor-Advised Funds and Private Family Foundations for Charitable Giving

When families embark on a philanthropic journey, they often consider whether to create a private family foundation (PFF) or establish a donor-advised fund (DAF). Both vehicles are powerful tools, each with distinct advantages. In practice, many families find that using both together can provide the flexibility, simplicity, and impact they seek. With careful planning, the unique strengths of each can be leveraged to maximize efficiency while advancing a family’s charitable vision.

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The Role of Private Family Foundations

Private family foundations provide families with a high degree of control over their charitable giving. They can:

  • Support a wide range of activities, including grants to individuals, international giving, and charitable program operations.
  • Offer a formal structure that involves multiple generations and often carries on the family name.
  • Allow the family to appoint a board, hire staff, and engage directly in philanthropic work.

For families seeking visibility, structure, and active involvement, a private foundation creates a strong platform for long-term engagement.

The Advantages of Donor-Advised Funds

Donor-advised funds, on the other hand, emphasize simplicity and ease of use. Because DAFs are managed by public charities, they require:

  • No separate tax filings or board meetings.
  • Minimal administrative effort compared to a private foundation.
  • Flexible grantmaking, with donor recommendations typically approved quickly.
  • The option to give anonymously, which is not possible with a private family foundation, where all grants must be publicly reported.

For families looking to streamline their giving while retaining flexibility, a donor-advised fund offers an efficient and cost-effective solution.

Strategic Benefits of Using Both Together

One of the most effective strategies for families with a private foundation is to make periodic grants from the foundation into a donor-advised fund. This approach can help satisfy the private foundation’s requirement to distribute at least 5% of assets annually for charitable purposes.

A grant from a foundation to a DAF qualifies toward this 5% minimum, as long as:

  • The DAF is operated by a public charity.
  • The funds are transferred without restrictions.

Three Key Benefits of Combining a Foundation with a DAF

This strategy offers several advantages that help families simplify and strengthen their philanthropy:

  • Streamlined grantmaking: Simplifies year-end giving and ensures the foundation meets its 5% annual distribution requirement.
  • Reduced administrative burden: Lessens the workload of tracking grants, accounting, and compliance reporting.
  • Improved succession planning: As foundation assets are spent down, families may choose to transition remaining funds into a DAF, preserving values and legacy while reducing fixed costs and administrative responsibilities.

The Best of Both Worlds: Structure and Simplicity

Ultimately, donor-advised funds and private family foundations should not be seen as competing vehicles but as complementary tools. When used together, they combine the structure and control of a foundation with the simplicity and flexibility of a donor-advised fund.

For families who want to balance structure with ease, this combined approach allows them to focus on what truly matters—making a lasting impact on the programs and organizations that reflect their values.

Connect with us to explore how combining a donor-advised fund with a private family foundation could enhance your family’s philanthropic impact.

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