Private Foundation vs. DAF: The Battle of Control vs. Privacy
Tax Tips / Philanthropy
Private Foundation vs. DAF: The Battle of Control vs. Privacy
💡 Executive Summary
- Problem: You have $5M+ to allocate for charity. You want the tax deduction now, but want to distribute the money over decades.
- Solution: Choose between a Private Foundation (PF) (Your own non-profit corp) or a Donor Advised Fund (DAF) (A charitable investment account).
- Result: Use a PF if you want to hire family members and run your own programs. Use a DAF if you want anonymity, higher deduction limits, and zero paperwork.
⚠️ THE PRIVACY TRAP
Private Foundations must file Form 990-PF annually, which is public. Anyone can see your assets, your grants (who you gave to), and your trustee fees. If you want to donate anonymously (e.g., to controversial causes or without solicitation), a DAF is the only way (the DAF sponsor is the face).
Private Foundations must file Form 990-PF annually, which is public. Anyone can see your assets, your grants (who you gave to), and your trustee fees. If you want to donate anonymously (e.g., to controversial causes or without solicitation), a DAF is the only way (the DAF sponsor is the face).
The Private Foundation is the ultimate status symbol, but it comes with handcuffs (Self-Dealing rules, 5% mandatory payout, 1.39% excise tax). The DAF is less “prestigious” but structurally superior for 90% of wealthy families due to its simplicity and privacy.
🧐 Core Mechanic: Employing Family
This is the “Killer App” of Private Foundations. You can legally hire your children to run the foundation and pay them a “reasonable salary” from the endowment. A DAF generally prohibits paying any compensation to family members.
This is the “Killer App” of Private Foundations. You can legally hire your children to run the foundation and pay them a “reasonable salary” from the endowment. A DAF generally prohibits paying any compensation to family members.
Deduction Limit Comparison (AGI Cap)
Tax Deduction Power (Cash Gift)
Private Foundation
Max 30% of AGI
Limited
Donor Advised Fund (DAF)
Max 60% of AGI*
Maximum
Head-to-Head: Foundation vs. DAF
| Feature | Private Foundation | Donor Advised Fund |
|---|---|---|
| Setup Cost | $15k – $50k + Months | $0 + Instant |
| Privacy | Zero (Public Record) | 100% Anonymous |
| Family Employment | Allowed (Reasonable) | Prohibited |
| Mandatory Payout | 5% of Assets / Year | None (Grow Forever) |
“Start with a DAF. If your giving exceeds $10M and you want to hire staff, graduate to a Foundation. Or better yet, do both: Use the Foundation for public legacy and the DAF for private giving.”
🔗 Related BMT Playbooks (Internal)
🛡️ The Funding: Using a Shark-Fin CLAT to fund your DAF/Foundation ⚖️ The Income: CRT pays you first, then funds the DAF later ✅ The Asset: Donating QSBS stock to DAF for double tax benefits🏛️ Institutional Resources (External)
📜 Legal Text: IRC § 509 (Private Foundation Definition) 🏛️ IRS Guide: Private Foundations Lifecycle 📘 Comparison: National Philanthropic Trust Guide
BMT designs for tax reality, not theory.