Can charitable funds be given directly to individuals?

A common question and an important one.

At the Community Foundation for Greater Atlanta, one of the most frequent questions we hear from donors and their advisors is whether charitable funds can be distributed directly to individuals in need. Many donors want their charitable dollars to help real people, not just institutions, and that instinct is both generous and understandable.

The short answer is yes, charitable funds can support individuals, but only when programs are structured carefully and in compliance with federal tax law.

Why Grants to Individuals Are Heavily Regulated

Grants to individuals sit at the intersection of generosity and private benefit, which is why the IRS regulates them closely.

Under the Internal Revenue Code, charities may provide assistance to individuals only when the activity serves a legitimate charitable purpose under Section 501(c)(3). To comply, programs must:

• Benefit a charitable class, not specific individuals
• Use objective, nondiscriminatory selection criteria
• Include safeguards to ensure funds are used for charitable purposes
• Avoid private inurement or impermissible private benefit
  

The IRS has made this clear repeatedly: when individuals are involved, process matters just as much as intent.

Private Foundations: Stricter Rules, Limited Exceptions

For private foundations, the rules are especially strict.

Under Internal Revenue Code Section 4945, grants to individuals are treated as taxable expenditures unless a specific exception applies. Common exceptions include:

• Scholarships and fellowships
• Educational loans
• Certain disaster relief programs
  

Even then, foundations must:

• Obtain advance IRS approval of grant procedures
• Have approved procedures in place before making any grants

Good intentions alone are not enough.

Public Charities and Community Foundations: More Flexibility, Still Careful Oversight

Public charities, including community foundations, have more flexibility, but not a free pass.

While community foundations are not subject to the excise taxes under Section 4945, grants to individuals are still evaluated under:

• The operational test in Section 501(c)(3)
• The private benefit doctrine
  

The IRS has long recognized that public charities may provide direct assistance to individuals for purposes such as:

• Need-based financial aid
• Disaster or emergency relief
• Educational support
• Health-related assistance
  

The key is that recipients must be selected through objective criteria, and the program must benefit a broader charitable class, not insiders or pre-selected individuals.

Not All Funds Are the Same

Whether grants to individuals are permissible often depends on the type of fund involved.

Funds Well-Suited for Individual Assistance

• Unrestricted funds
• Field-of-interest funds
  Scholarship funds
  

These work well because the community foundation maintains control over program design, selection, and oversight. Scholarship funds, in particular, are often structured to mirror the procedural protections required of private foundations, even though the Community Foundation of Greater Atlanta itself is a public charity.

A Special Note on Donor-Advised Funds (DAFs)

Donor-advised funds are different.

They are subject to additional rules under Internal Revenue Code Sections 4966 and 4967. The IRS has consistently warned that donor involvement in selecting individual recipients can trigger serious prohibited benefit concerns.

Because of this, grants from DAFs directly to individuals are highly restricted and require careful review.

Key Takeaways for Donors and Advisors

Here are three things to remember:

• Grants to individuals can be a legitimate charitable activity when structured with care, transparency, and institutional control from the start.
• Most compliance problems arise from informality or misunderstanding, not bad faith.
• Community foundations offer fund types that can support individuals, and expert guidance makes all the difference.

Our team is always happy to help you navigate these questions. We’re honored to be your first call whenever charitable giving is on your mind.