Going private is not so private: Advantages of a community foundation donor-advised fund

When it comes to philanthropy, private foundations and donor-advised funds stand at the forefront of 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 stark differences), it’s important to know the benefits of each strategy when advising your philanthropic clients.

Here are three questions you can ask to determine whether a private foundation or a donor-advised fund may be best for your client’s unique 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 those housed within 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 the Community Foundation for Greater Atlanta, your clients can also choose to tap into our unique support through philanthropic advising, facilitating family engagement, and offering a community and network of resources to help inform them on the urgent 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 your clients should be acutely aware of the differences as they continue their philanthropic journeys. 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 the Foundation, however, are not subject to this disclosure. By establishing a named fund at the 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 Foundation to satisfy IRS requirements, and then make grants at a later time.

What level of administration, management and control are you looking for when it comes to your philanthropy?
While donor-advised funds may offer more flexibility being free from mandatory distributions, your clients may have a specific investment strategy or level of agency they would like to maintain in their giving. While this may appeal to some, it’s important to note the downsides that come with the administrative upkeep needed to establish and maintain a private foundation.

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 the Foundation can help preserve a philanthropic legacy while relieving your clients 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 your client cares 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 for your clients. Whether a private foundation or a donor-advised fund, we encourage you to reach out to the Foundation so we can help evaluate what is best to meet your client’s charitable and financial goals.