Philanthropy / Wealth Management / Wealth Planning

For Donors, Sometimes ‘Both’ Is the Best Answer

By Anne Bucciarelli, Jennifer Ostberg July 13, 2017
For Donors, Sometimes ‘Both’ Is the Best Answer

Some donors think they have to choose between creating a private foundation and a donor-advised fund (DAF). But to achieve some goals, it may make sense to create both types of charitable vehicles.

For example, let’s say the required distribution from your private nonoperating foundation is higher this year due to strong market performance. You don’t have an additional grant lined up, and you need a little more time to decide where to send the money. Creating a “sister” DAF can make this possible.

If the foundation has $10 million in assets and a minimum required distribution of $500,000, you could grant $400,000 to the qualified not-for-profit organizations that you’ve already identified and $100,000 to your sister DAF. Then, you could take your time in deciding how to advise the DAF administrator to distribute the $100,000.

While the private foundation and DAF are legally separate entities, you might view your combined balance sheets as a single pool of philanthropic capital that you can manage with this kind of transfer. Keep in mind, though, that grants between private foundations and DAFs are a one-way street running from foundations to DAFs, and not vice versa.

The combination of a private foundation and a DAF would also allow you to make an anonymous grant from time to time. While the foundation itself cannot conceal its identity, you can grant part of the foundation’s 5% annual distribution to your sister DAF, which can make an anonymous grant.

You can make additional contributions to either entity over time. If you have both, you can generate higher charitable income-tax deductions by donating certain assets, such as real estate and privately held securities, to the DAF. You can deduct only the cost basis of these assets if you donate them to a private foundation; you can deduct their fair market value if you donate them to a DAF.

For more tips on becoming financially engaged, explore Women & Wealth, a new Bernstein podcast series designed to educate, empower, and inspire female investors, and for additional thought leadership, check out the related blogs here.

The views expressed herein do not constitute, and should not be considered to be, legal or tax advice. The tax rules are complicated, and their impact on a particular individual or organization may differ depending on their specific circumstances. Please consult with your legal or tax advisor regarding your specific situation.

For Donors, Sometimes ‘Both’ Is the Best Answer
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