Name: Saint Paul & Minnesota Foundation
Address: 370 Wabasha Street North, Suite 300, Saint Paul, MN, 55102, US
Telephone: 651.224.5463
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Compare the benefits and responsibilities of two popular giving vehicles your clients may be considering for their charitable giving.

Your clients may wonder about the differences between donor advised funds and private foundations, and how to choose the best option for their giving.

Choosing the right vehicle for strategic giving can feel complex, as both donor advised funds (DAFs) and private foundations offer distinct pathways. Each has its own framework of rules, benefits and limitations. Read on for a side-by-side comparison to help guide your clients.

Donor Advised Fund Features and Benefits

Donor advised funds or DAFs function under the umbrella of IRS-recognized 501(c)(3) nonprofits such as:

Community foundations
Universities
Corporate gift funds

This financial tool allows donors to establish individually named funds. Contributions to this fund can include various assets like real estate, cryptocurrency, farm assets and retirement assets that are typically tax-deductible. Donors can also recommend grants to their preferred nonprofits.

DAFs generally feature straightforward setup processes. They are often free of charge and have relatively low maintenance fees. Initial minimum contribution requirements vary, ranging from $500 to $25,000 depending on the sponsoring organization. The sponsoring organization then assumes responsibility for all tax reporting and legal compliance associated with fund management.

It's crucial to understand that a DAF isn't a separate legal entity. Donors retain advisory privileges concerning grant recommendations and investment strategies, but legal ownership and control of the assets and grantmaking remain with the sponsoring organization. This structure enables the tax-deductibility of donor contributions, and in some instances, it allows donors the ability to recommend their own investment advisors to the sponsoring organization for managing fund assets.

A key characteristic of DAFs is the significant privacy it offers donors, as the size of their funds and individual grants are not publicly disclosed. While the sponsoring organization reports aggregated financial data publicly, specific fund and donor information remain private.

Explore the Benefits of a DAF

Private Foundation Features and Benefits

Private foundations, in contrast, operate as a distinct legal entity, requiring both application to the IRS and registration within the state of its establishment.

Upon creation, the donor(s) appoint a board of directors or trustees, often including themselves and their family, who hold legal control over the foundation's assets, grantmaking activities and any hired staff. These administrative roles can be filled on a volunteer or paid basis.

Establishing and maintaining a private foundation involves a considerable financial commitment, with a commonly suggested minimum initial contribution ranging from $1 million to $5 million to ensure long-term sustainability.

Private foundations are mandated to file annual public tax returns detailing their assets, financial transactions and grants awarded, making this information accessible to the public through IRS records.

DAFs vs. Private Foundations: Identifying the Ideal Fit

Deciding between a DAF and a private foundation depends on the donor's desired level of involvement and operational preferences.

When comparing charitable giving options, you may want to discuss these questions with your client to help determine what’s best:

What amount of work are your clients able to do — or hire staff to do — related to their grantmaking?
Do they seek comprehensive engagement and direct management akin to running a business?
Do they prefer a streamlined approach where administrative burdens are handled by others, allowing them to concentrate on supporting their chosen causes?
What tax deduction works best for their personal situation?
Do your clients want to potentially grant anonymously?

For assistance in comparing these giving vehicles, talk to a gift planner by calling 651.224.5463 or emailing philanthropy@spmcf.org.

At A Glance: Comparing a Donor Advised Fund to a Private Foundation

	Donor Advised Fund	Private Foundation
Minimum to Establish	$500-$25,000 (varies by provider)	$1-5 Million (suggested minimum)
Creation Process	Established at a community foundation or other DAF provider	Application with the IRS and state registration
Tax Deductibility of Contributions (% of AGI)	60% (Cash*), 30% (Long-Term Capital Asset)	30% (Cash), 20% (Long-Term Capital Asset - limited to basis for private assets)
Grantmaking	Donor recommends grants; IRS requires that the final approval rests with the community foundation or sponsoring organization	Foundation board/trustees control, subject to IRS requirements
Anonymity	Contributions, grants and donors can be anonymous	Contributions, grants and board members are listed on annual tax documents, which are available for public review
Investments	Donor recommends investments based on provider options, donor's investment advisor can manage in some cases	Foundation staff or hired investment advisor manages and controls
Administrative Requirements	Minimal, handled by provider	Significant, foundation responsible for all aspects
Multiple Generations	Typically limited to 1-2 successor generations	Can exist indefinitely with unlimited generational control

*Currently set to reduce to 50% after 2025.

For a more detailed comparison you can share with your clients, download our printable Donor Advised Funds and Private Family Foundations comparison.

Combining DAFs and Private Foundations for Strategic Giving

Since both giving options have advantages, some donors actually decide to do both.

Your clients can strategically use both DAFs and private foundations to leverage each of their respective strengths. A private foundation might focus its grantmaking on specific charitable missions. A DAF can then be used for grants outside of the fund's primary focus or for anonymous giving, preserving the foundation’s public image and core objectives.

DAFs also offer more favorable tax deductibility for both cash and appreciated assets. Notably, the full fair market value of appreciated private assets can be deducted when contributed to a DAF, whereas deductions for such assets given to a private foundation are typically limited to the donor's basis.

Furthermore, DAFs simplify the donation of complex assets like real estate and private stock, as the sponsoring organization provides expertise in liquidation and tax reporting. They can also offer valuable research and guidance on potential grantees.

Transitioning from a Private Foundation to a Donor Advised Fund

Recognizing the significant administrative demands of running a private foundation, some families have opted to transition to a DAF. This allows them to continue their charitable activities, including recommending grants, without the ongoing burden and expense of managing a separate legal entity.

Another option for private foundations seeking to reduce administrative overhead is to outsource these responsibilities.

Organizations like the Saint Paul & Minnesota Foundation offer foundation services and support, encompassing things like accounting, regulatory compliance, board support, grant processing and due diligence that enables families to concentrate on their philanthropic impact.

View Our Foundation Support Services

Determining if a DAF or Private Foundation is Best for Your Client

Both donor advised funds and private foundations serve as valuable instruments for philanthropy, each presenting distinct advantages and disadvantages. The optimal choice depends on individual philanthropic goals and circumstances. Some may find that using both structures best aligns with their needs.

Regardless of the chosen path, the Saint Paul & Minnesota Foundation is ready to assist in navigating your philanthropic journey.

At the Foundation, we work with donors who have DAFs, private foundations or both. We can also assist your clients in converting their private foundations to DAFs. For more information about our services, talk to a gift planner by calling 651.224.5463 or emailing philanthropy@spmcf.org.

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The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.

This post was originally published on November 14, 2022, and updated on July 10, 2025.

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