When it comes to philanthropy, private foundations and donor-advised funds are the most popular
giving vehicles for donors. In fact, grants from these two giving strategies accounted for $168.88 billion in support to nonprofits in 2023 ($54.77 billion from donor-advised funds and $114.11 billion from private foundations). But with their similarities (and many differences), it’s important to know the benefits of each strategy when considering charitable giving.
Here are three questions to determine whether a private foundation or a donor-advised fund may be best for your situation and goals:
How important is flexibility in giving when it comes to your charitable priorities?
While private foundations and donor-advised funds each play meaningful roles in philanthropy, there are key distinctions that make donor-advised funds, especially at community foundations, a more flexible and accessible option for many donors. These differences extend beyond the legal structure and deductibility rules; they also include the ease of use and the practical opportunities for impactful, customized giving.
Another important distinction to note is the “5% rule,” which requires private foundations to distribute at least 5% of the fair market value of their assets each year for charitable purposes. Donor-advised funds are not subject to this regulation, allowing more flexibility for the donor to recommend grants at their discretion.
Particularly with donor-advised funds at Hudson Community Foundation (HCF), you can also choose to work with our unique support through philanthropic advising, facilitating family engagement, and offering a community and network of resources to help inform you on the needs in the community.
How important is privacy and publicity when it comes to your philanthropy?
Among the differences between donor-advised funds and private foundations, privacy preferences are important, and you should be aware of the differences. All private foundations are required to complete a Form 990-PF each year, which in turn, must be made publicly available. Form 990-PF includes disclosures including fiscal data of the foundation, a list of grants and amounts, names of trustees and officers, and more.
Donor-advised funds at HCF do this disclosure. By establishing a named fund at the community foundation, donors who want to give anonymously can customize the name of their fund and determine how much contact information (if any) they would like grantees to receive.
It’s important to note that increasingly, donor-advised funds and private foundations are being used in tandem. If a private foundation needs to meet its minimum payout for the year and has not decided on grantees, or does not want its giving to be publicized, the private foundation can make the annual distribution to a donor-advised fund at the community foundation to satisfy IRS requirements and then make grants later.
What level of administration, management and control are you looking for when it comes to your philanthropy?
To start a private foundation, there are plenty of compliance tasks and regulatory steps that need to be followed. Sunsetting private foundations to establish a donor-advised fund at HCF can help preserve a philanthropic legacy while relieving of administrative burden. Terminating a private foundation and consolidating giving through a donor-advised fund is often a great alternative when day-to-day management takes away from the focus and impact of investing in the causes you care about.
With increases to the standard deduction and limits to charitable deductions for itemizers rolling out in 2026 under the One Big Beautiful Bill Act, it’s more important than ever to be aware of different opportunities to maximize the tax benefits. Whether a private foundation or a donor-advised fund, we encourage you to reach out to our community foundation so we can help evaluate what is best to meet your or your client’s charitable and financial goals.
The team at the HCF looks forward to working with you and your clients to establish (or update) bequests to fulfill your clients’ charitable legacies. Give us a call!
Read more about Donors Guide to Donor Advised Funds.
With a fund at Hudson Community Foundation (HCF), advisors can manage the charitable assets on their preferred platform at any amount. Assets stay under your management. You can provide your clients with the consistent investment advice they expect. We are your partner in charitable giving!
The team at HCF is a resource as you serve your philanthropic clients. We understand the charitable side and are happy to serve as a secondary source as you manage the primary relationship with your clients. This blog is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.
