Yes, a donor-advised fund (DAF) can give to a private foundation — but only under very limited circumstances, and generally not to the typical private non-operating foundations most people think of.
According to the National Philanthropic Trust’s 2024 report, DAFs distributed over $54 billion in grants in 2023, yet almost none of that went to private foundations. Federal tax law tightly restricts DAF-to-foundation grants, allowing them only for certain qualified foundation types under strict rules. This article unpacks those rules in depth, explores real examples, and compares how donor-advised funds and private foundations differ at both federal and state levels.
- 🏛️ The law demystified: Understand the key IRS rules on DAF grants to foundations and why they’re so strict.
- ⚖️ State vs. federal differences: Learn how regulations can vary by state and what that means for your charitable giving.
- ❌ Pitfalls to avoid: Discover common mistakes and “no-go” moves people attempt when combining DAFs and private foundations.
- 💡 Real examples & case studies: See true-to-life scenarios of what happens when donors try to use DAFs to fund foundations (and how to do it right).
- 🤔 Pros, cons & FAQs: Get a side-by-side comparison of donor-advised funds vs. private foundations, plus quick yes/no answers to your burning questions.
Key Rules and How They Work (DAF to Private Foundation)
Donor-Advised Funds at a Glance: A donor-advised fund is a charitable giving account maintained by a public charity (often a community foundation or a national sponsor like Fidelity Charitable). When you contribute to a DAF, you get an immediate tax deduction, and the sponsoring public charity legally owns the funds. However, you (as the donor-advisor) retain the privilege to recommend grants to other charities over time. Under federal law, DAF grants must go to eligible charitable recipients – typically IRS-qualified public charities in good standing. This means nearly all grants from DAFs are made to 501(c)(3) organizations classified as public charities (schools, hospitals, religious institutions, etc.). The IRS rules were codified in the Pension Protection Act of 2006, which formally defined DAFs and imposed safeguards to prevent abuse.
The Private Foundation Puzzle: Private foundations are also 501(c)(3) charities, but they’re classified as private because they usually have a single major donor or family funding them (instead of broad public support). Examples include family foundations and corporate foundations. By default, a private foundation is a non-operating foundation – basically a grant-making entity that gives money to other charities (rather than running its own programs). Federal tax law treats private foundations differently from public charities: foundations have stricter rules (like an annual 5% minimum payout requirement, and limits on how much donors can deduct for contributions). So can a DAF give money to a private foundation? In general, no – not to a private non-operating foundation. IRS regulations prohibit DAF grants to most private foundations in order to uphold those stricter rules.
Why the Restriction? Allowing DAF-to-foundation grants would create a loophole for tax deductions and control. For instance, donations to a public charity/DAF have higher deduction limits (up to 60% of adjusted gross income for cash gifts) compared to donations made directly to a private foundation (usually capped at 30% of AGI). Without restrictions, a donor could dump money into a DAF for the larger tax write-off and then funnel it into a private foundation they control – effectively sidestepping Congress’s limits on private foundation gifts. This “double dip” tactic is exactly what the rules aim to prevent. Additionally, once assets sit in a private foundation, they’re subject only to the 5% payout rule – meaning funds could be locked away with minimal annual giving.
From the IRS’s perspective, a DAF grant should go directly to active charities serving the public, not into another entity’s endowment. In short, federal law closes the loophole by saying DAF money generally cannot flow into private non-operating foundations. If a DAF sponsor did make such a grant without special permission, it would be deemed a “taxable distribution” – triggering penalty excise taxes on the sponsoring organization (and possibly its managers). No reputable DAF sponsor wants to incur IRS penalties, so they simply won’t approve a grant recommendation to a standard private foundation.
The Narrow Exception – Private Operating Foundations: Importantly, there is a rare type of private foundation that can receive DAF grants: the private operating foundation. These are hybrids under IRS rules – legally private foundations, but they actively run their own charitable programs like a public charity would. To qualify as a private operating foundation, the organization must spend at least 85% of its income or assets directly on its charitable activities (not merely grant it out). In other words, it’s doing hands-on charitable work (operating museums, research facilities, libraries, etc.) rather than just making grants. Because these entities function more like public charities in practice, the IRS permits donor-advised funds to grant to them. Even so, there are strict conditions: the foundation must certify its status for each grant, confirming it meets the operating requirements and that accepting the DAF grant won’t endanger its operating foundation classification. For example, the J. Paul Getty Trust (which runs the Getty Museum and other art programs) is a well-known private operating foundation. A DAF could legally make a grant to support the Getty’s charitable work, since the Getty Trust actively operates a museum (a direct charitable activity). In contrast, something like the Bill & Melinda Gates Foundation – a classic private non-operating foundation that primarily gives grants to others – would not be eligible to receive money from a donor-advised fund.
How DAF Sponsors Enforce the Rule: Practically every DAF-sponsoring organization has grant guidelines reflecting these laws. When you recommend a grant from your donor-advised fund, the sponsor will verify the recipient’s IRS status. If you tried to recommend a grant to “Smith Family Foundation, Inc.” and that entity turns out to be a private non-operating foundation, your DAF sponsor will decline the request. It’s nothing personal – they’re simply following federal law. Many sponsoring charities explicitly list prohibited grant recipients: private non-operating foundations, political campaigns, non-charitable organizations, and so on. Some sponsors will go a step further and handle the due diligence if the target is a less common entity. For a private operating foundation, the sponsor may ask that foundation for documentation or a copy of its most recent IRS filing to confirm it meets the criteria. Only after receiving proof will the DAF grant be approved. This process protects both the DAF sponsor and you as the donor from inadvertently breaking the rules.
Bottom line: Donor-advised funds cannot give to private non-operating foundations. The only exception is for bona fide private operating foundations – and even then, extra safeguards apply. Understanding this up front will save you from attempting an improper grant. Next, we’ll explore what specific pitfalls to avoid, and why violating these rules carries serious consequences.
What to Avoid When Using a DAF for Foundations
When navigating donor-advised funds and private foundations, it’s crucial to know the “don’ts”. Here are the major pitfalls and prohibited moves to avoid at all costs:
🚫 Don’t Funnel DAF Money into Your Own Private Foundation: If you have a family foundation, you might be tempted to use your donor-advised fund as an intermediary – for example, recommending a grant from your DAF to your private foundation’s bank account. This is exactly what the IRS disallows. No matter how noble your intentions, you cannot park DAF grants in a private non-operating foundation (even if it’s for eventual charitable use). Such a transfer provides no immediate charitable expenditure; it just moves funds from one pot under your influence to another. From a regulatory standpoint, this looks like a self-serving maneuver to bypass tax limits or shield assets. It can also raise self-dealing red flags: essentially, you’d be directing charitable funds in a way that benefits your foundation (an entity closely tied to you). Always direct DAF grants outward to active charities, not inward to vehicles you or your family control.
⚠️ Don’t Try to “Launder” Deductions: One abuse the IRS watches for is using a DAF to circumvent charitable deduction rules. For instance, say you hit your limit on deductions for gifts to your private foundation this year. You might think, “I’ll give to my donor-advised fund instead and deduct it, then later shift that money into the foundation.” This is a huge no-no. It’s essentially laundering a private foundation contribution through a DAF to get a higher deduction than allowed. The tax code explicitly forbids this sequence. If caught, the penalties could include loss of deduction, excise taxes, and other sanctions. The IRS designed DAF restrictions precisely to thwart such maneuvers, so don’t even consider it.
❌ Don’t Ignore Expenditure Responsibility (ER): In rare cases, a DAF sponsor could grant to a non-traditional recipient if they follow special procedures called expenditure responsibility – a rigorous oversight process. This is generally used when foundations give to organizations that are not typical public charities (like foreign charities or other private foundations). Technically, a DAF sponsor could attempt expenditure responsibility to grant to a private foundation, but in practice most will refuse to go there. It’s burdensome and risky. If someone suggests a workaround like “don’t worry, the community foundation can do ER and send the money to your private foundation,” be very skeptical. Almost all DAF managers have internal policies against using ER for grants to private non-operating foundations because of the compliance headache. Avoid pushing your sponsor on this; it’s a battle you’re likely to lose, and it marks you as a potentially problematic donor.
🚷 Don’t Expect Anonymity to Bypass Rules: DAFs often allow anonymous giving – you can recommend grants without disclosing your identity to the recipient. But anonymity does not mean the grants bypass scrutiny. Some donors might think, “If I make an anonymous grant to my friend’s private foundation, nobody will trace it back to me.” Wrong. The DAF sponsoring organization knows exactly where the money is going and who recommended it, and they must approve every grant. Anonymous to the outside world isn’t anonymous internally. The sponsor will still veto a disallowed grant, and if somehow a questionable grant slipped through, anonymity wouldn’t shield you or the fund from IRS action. Essentially, no cloak of secrecy can override the regulations.
💸 Don’t Use a DAF Grant to Satisfy a Personal Pledge to a Foundation: This is a subtle but important point. Let’s say you personally pledged $50,000 to your family’s private foundation or to another foundation’s project. Later, you have the bright idea to recommend a grant from your DAF for that amount to fulfill your pledge. This scenario triggers the IRS rule against “more than incidental benefit” to DAF donors. Fulfilling a personal pledge can be seen as benefiting you (since you’re relieved of your pledge obligation), which is not allowed. The IRS has specifically warned against using DAF grants to satisfy individual pledges. Even though the beneficiary is charitable, the act of fulfilling your pledge with DAF money confers a benefit to you. This would violate the self-dealing/benefit rules and could incur penalties. The safe route: either fulfill the pledge out-of-pocket or don’t make personal pledges expecting to pay them with DAF funds.
In summary, avoid any attempt to use a donor-advised fund in a way that indirectly benefits you or a related entity (like your private foundation). DAF contributions are meant to go directly to working charities, not to intermediate vehicles or obligations that circle back to you. By steering clear of these forbidden moves, you keep your philanthropy above-board and complication-free. Next, we’ll illustrate some real-world scenarios to show how these rules play out.
Real-World Examples: When Donors Try (and What Happens)
Abstract rules become much clearer when you see them in action. Let’s look at a couple of real-world inspired scenarios involving donor-advised funds and private foundations, and see what happened:
Example 1: The Family Foundation Detour (What Not to Do)
The scenario: Jane Doe is a philanthropist who set up the “Doe Family Foundation,” a private non-operating foundation, years ago. She’s also been contributing to a donor-advised fund at her local community foundation for convenience and the higher tax deduction. This year, Jane’s foundation has a big project in mind – creating a scholarship program – but it needs an extra $100,000 to fund it. Jane considers using her DAF to supply that money to the Doe Family Foundation, which would then run the scholarship. She recommends a $100,000 grant from her DAF to her foundation.
What happened: The community foundation (DAF sponsor) flags the Doe Foundation’s tax status and quickly denies the grant recommendation. They inform Jane that grants to private non-operating foundations are not permitted. Jane is frustrated; the money in the DAF was meant for charity, after all. But the sponsor’s decision is final – those funds must go directly to a charitable program or public charity. Jane cannot indirectly route them into her own foundation. In the end, Jane has two choices: either have the DAF give the $100,000 directly to the scholarship program’s administering charity (bypassing her foundation), or withdraw the idea. She learns the hard way that trying to detour DAF money into a family foundation is a dead end. The upside: No laws were broken since the sponsor caught it, and Jane now better understands the boundaries. The downside: The Doe Family Foundation must find other funding for its scholarship, and Jane wasted time on a grant that was never going to fly.
Example 2: Supporting an Operating Foundation (How to Do It Right)
The scenario: The Smiths are a philanthropic family passionate about wildlife conservation. They run the “Smith Wildlife Conservation Trust,” which operates a private animal sanctuary and research center. This trust is a private operating foundation – the Smiths fund it, but it directly carries out programs (caring for rescued animals, conducting field research) with minimal grant-making to others. The Smith family also has a donor-advised fund through a national sponsor. They want to bolster their sanctuary’s budget for a new breeding program. Knowing the rules, they approach their DAF sponsor with this plan.
What happened: Because the Smith Wildlife Conservation Trust actively operates a sanctuary, it likely qualifies as a private operating foundation. The DAF sponsor asks the Smiths for verification – specifically, the trust needs to certify its private operating status. The Smiths provide documentation from the trust’s latest IRS Form 990-PF showing it meets the income distribution tests for operating foundations. Satisfied, the sponsor approves a grant recommendation of $25,000 from the DAF to the Smith Wildlife Conservation Trust. The funds transfer successfully. This is a happy outcome: the sanctuary receives much-needed funding for its charitable work, and it was all above-board. The DAF sponsor will note in its records that the grant went to a private operating foundation (something they track carefully). Had the Smiths’ trust been a non-operating foundation instead, the result would have been a flat denial. But because they did it right – confirming the status and purpose – their donor-advised fund could support their personal charitable project without issue.
Example 3: The Private Foundation “Payout” Maneuver (A Cautionary Tale)
The scenario: The Greenfield Foundation is a private non-operating foundation subject to the 5% payout rule. Toward year-end, the Greenfields realize they haven’t met their required distribution – they need to give out another $200,000 to avoid IRS penalties on the foundation. Mr. Greenfield has an idea: “Let’s grant the $200,000 from our foundation into a donor-advised fund. We’ll satisfy the payout requirement now, and then we can take our time to actually distribute to charities via the DAF over the next few years.” They proceed to have the Greenfield Foundation make a grant to a DAF account set up at a national charitable fund.
What happened: Initially, the transfer goes through – private foundations are allowed to give to public charities (and the DAF sponsor is a public charity). However, the story isn’t over. The IRS and states like California have grown concerned about this exact tactic.
Does it truly count as satisfying the foundation’s payout requirement? Technically the money left the foundation to a public charity, but it’s now sitting in a DAF (potentially indefinitely). In the Greenfields’ case, they soon get a letter from the state Attorney General’s Charitable Trusts Section asking for an explanation of this grant. Regulators view it as possibly undermining the intent of the payout rule.
In fact, proposed federal legislation (the Accelerating Charitable Efforts Act) has sought to bar foundations from counting transfers to DAFs as qualifying payouts unless the DAF funds are granted out to end charities within a short time frame. The Greenfields find themselves under scrutiny. While they haven’t broken a law per se, they’ve stepped into a gray area that regulators frown upon. The lesson: using a DAF as a parking lot for a foundation’s required grants is legally risky and could invite oversight or future penalties. The preferred practice (and likely future requirement) is to only count it as a payout if the DAF distributes those funds to operating charities by the end of the following year.
These examples illustrate a spectrum of scenarios: an outright prohibited move, a permissible and successful grant, and a legally allowed but questionable tactic that faces pushback. The takeaway is clear – understanding the fine print ahead of time lets you channel funds in compliant ways. If you’re ever unsure whether a potential grant or transfer between a DAF and foundation is allowed, pause and ask a legal or tax advisor (or the DAF sponsor’s compliance team). Real lives, real donations, and real legal consequences are attached to these decisions, so it pays to get it right.
Supporting Evidence and Data
Facts and figures help underscore why these rules exist and how donor-advised funds and private foundations operate in practice. Let’s delve into some supporting evidence and data that shed light on DAF-to-foundation giving:
DAF Growth vs. Foundation Growth: Donor-advised funds have been the fastest-growing charitable vehicle in the U.S. over the past decade. The numbers are striking – according to the National Philanthropic Trust’s annual report, the total charitable assets in DAFs reached approximately $250 billion in 2023. There were also over 1.7 million DAF accounts active nationwide. Compare this to private foundations: the U.S. has roughly 100,000–150,000 private foundations (depending on the estimate) with combined assets around $1 trillion. While foundations still hold larger total wealth, the sheer number of DAFs now dwarfs foundations. This explosion of DAF usage partly prompted regulators to pay closer attention. Lawmakers realized that if even a fraction of those quarter-trillion dollars in DAFs were channeled into private foundations without oversight, it could undermine tax policy. The rapid growth is evidence of why clear lines had to be drawn about permissible grants.
Payout Rates – DAFs vs. Foundations: One key data point in the DAF debate is how quickly funds are disbursed for charity. Private non-operating foundations by law must spend 5% of their assets on charitable purposes annually (or pay a penalty). Many just meet that minimum. In contrast, donor-advised funds have no mandatory payout rate by law – but in practice DAF donors grant about 20% (or more) of assets each year on average. Recent data show DAFs consistently maintaining payout rates four to five times the foundation minimum. For example, in 2023 the aggregate DAF payout rate was roughly 24% of assets. This is often cited as evidence that DAFs are actively channeling money to working charities at a healthy clip. Now, imagine if DAFs started giving large sums to private foundations: the worry is that the money would then slow down to the foundation’s 5% trickle. Essentially, high DAF payout rates could be nullified by low foundation payout requirements. The data on payout behaviors support the IRS’s cautious stance – they want DAF distributions to keep flowing directly to active charities (where, hopefully, those high payout rates continue), rather than getting bottled up behind another gate.
IRS Enforcement and Penalties: Since the formalization of DAF rules in 2006, how often have organizations been penalized for violating them? The data on IRS excise taxes (Section 4966/4967 penalties) is not widely publicized, but we do know that sponsoring organizations take compliance extremely seriously. In conversations among community foundation leaders and philanthropic attorneys, it’s noted that denied grant attempts (like the Jane Doe scenario earlier) happen occasionally, but outright penalties are rare – precisely because sponsors self-police effectively. If a DAF were to make an improper grant, the IRS could impose an excise tax equal to 20% of that grant amount on the sponsoring charity, and a 5% tax on any fund manager who knowingly approved it. These are stiff penalties. No charity wants to explain to its board or the public that it paid a fine for an illegal grant. Thus, the near absence of penalty data is itself evidence that the rules are being followed: DAF sponsors have internalized the regulations, and donors are generally playing by the rules once they’re informed.
Legislative Scrutiny – Studies & Proposals: There have been reports and studies fueling the conversation on DAF-to-foundation issues. A few years ago, the Council of Foundations and other nonprofit watchdogs conducted surveys to see if private foundations were indeed using DAFs to sidestep payout rules (the reverse scenario of our main question). While not rampant, they found enough instances to prompt legislative interest. The California Association of Nonprofits (CalNonprofits) even spearheaded a study that influenced California’s attempted legislation on DAF transparency. In 2021, U.S. Senators introduced the Accelerating Charitable Efforts (ACE) Act, partly in response to concerns about funds stagnating in DAFs or shuffling between philanthropic vehicles. One provision of that bill would explicitly prohibit a private foundation from counting a grant to a DAF toward its 5% payout unless the DAF distributed those dollars to end charities within 15 days. Another provision indirectly discouraged DAF-to-foundation flows by tightening deduction timing. While the ACE Act hasn’t become law, the fact it garnered bipartisan support is telling. It’s evidence that policymakers see a need to fine-tune the interplay of these philanthropic tools so money doesn’t get “stuck.”
Public Trust and Perception: Data isn’t just about dollars – it’s also about perceptions. Surveys of public trust in charitable institutions show that complexity and opacity reduce confidence. When asked, donors and the public generally have less familiarity with donor-advised funds and how they operate, whereas “foundation” is a more commonly understood concept. However, high-profile media stories about wealthy individuals stockpiling money in DAFs or moving funds in roundabout ways have drawn scrutiny. For instance, a 2019 Stanford University study highlighted that billions were sitting in DAFs without immediate distribution, raising the question of whether some donors were exploiting the system for tax advantage. In response, large DAF sponsors published data on grant outflows to demonstrate their effectiveness. The conversation often circles back to our core topic: the movement of funds between charitable vehicles. Every dollar that hops from a DAF to a foundation or vice versa without quickly hitting the ground in a charitable program is viewed skeptically by watchdogs. Thus, even perception-wise, there’s pressure to ensure DAF grants go straight to active charities. That intangible evidence – the court of public opinion – further disincentivizes any DAF sponsor from approving a questionable grant that could look like warehousing money.
In summary, the supporting data paints a picture that reinforces the rules. DAFs are a huge and growing force in philanthropy, generally admired for high grant payout rates and flexibility. Private foundations are a more traditional vehicle with stricter requirements and a slower mandated spend-down. The rules barring DAF-to-private-foundation grants exist to keep each vehicle operating in its intended lane: DAFs as rapid deployment charity accounts, and foundations as more controlled, long-term philanthropies. Both have their place, but mixing the two without care risks both regulatory action and public criticism, as evidenced by the studies and statistics above. Armed with these facts, let’s compare donor-advised funds and private foundations more broadly, and clarify key terms that often confuse donors.
Comparisons to Similar Structures (DAFs, Foundations, and More)
Donor-advised funds and private foundations are often mentioned in the same breath as tools for philanthropy, but they’re fundamentally different structures. To truly understand the context of DAF-to-foundation giving, it helps to compare these vehicles and a couple of other similar structures. Here’s how they stack up:
Donor-Advised Fund vs. Private Foundation: A DAF is not a standalone legal entity – it’s an account inside a public charity. Think of it as a charitable checking account where you deposit funds (irrevocably to the charity) and then “advise” how to spend them. The public charity sponsor handles all administrative work, due diligence, and filings. In contrast, a private foundation is a separate legal entity (usually a nonprofit corporation or trust) that you create. The foundation has its own board (often your family members), must file its own tax return (Form 990-PF, which is public), and must manage its own investments, grants, and compliance. Essentially, a DAF outsources all the heavy lifting to a host organization, while a foundation requires DIY management. This structural difference drives many of the pros and cons we’ll summarize soon. It also explains the regulatory distinction: DAFs operate under the umbrella of a public charity, so they enjoy looser tax limitations but also must adhere to the public charity’s rules (like only funding other public charities). Private foundations have more autonomy but are under stricter tax regime because of that control and lack of public oversight.
Supporting Organizations – A Cousin to Private Foundations: You might have heard of supporting organizations, which are another type of 501(c)(3) that somewhat bridges the gap. A supporting organization is technically a public charity, but it exists to support another specific charity (often by holding an endowment for, say, a museum or university). Some families choose a supporting organization instead of a private foundation because it gets the favorable tax treatment of a public charity while still effectively being their “family charity vehicle.”
However, supporting organizations come with complex rules and aren’t as commonly used for family philanthropy as DAFs or foundations. For our topic, it’s worth noting that DAFs also face restrictions on grants to certain supporting organizations (particularly Type III supporting orgs that are not closely tied to their supported charity). This is another parallel to the private foundation rule – basically the IRS is wary whenever a charity (like a DAF sponsor) gives to an entity that a donor might strongly influence behind the scenes. The due diligence and sometimes prohibition on certain supporting org grants is akin to the ban on grants to private non-operating foundations. The theme is consistent: keep charitable funds flowing to active, broad-benefit entities rather than those that could be donor-controlled on the back end.
Charitable Trusts and Other Vehicles: A traditional charitable trust (like a charitable remainder trust or charitable lead trust) is yet another philanthropic structure, but those are more about generating income or managing assets for eventual charitable benefit and aren’t directly comparable to DAFs or foundations in how grants are made. However, one could note that if a trust creates a private foundation or contributes to one, similar IRS principles apply. Community foundations (which often host DAFs) sometimes also manage designated funds, field-of-interest funds, or scholarship funds. All these are variants of charitable funds that have specific purposes or rules, but they share with DAFs the characteristic of being under the community foundation’s public charity umbrella. None of these funds, however, would be permitted to grant to a private non-operating foundation either – they must go to active charities or causes per the community foundation’s oversight.
Foundation vs. Donor-Advised Fund – Use Cases: The choice between using a DAF or starting a private foundation often comes down to scale, control, and goals. For quick, easy giving across many causes: a DAF is usually superior. You can contribute smaller amounts, no need for legal setup, and you remain relatively hands-off. For building a long-term family legacy or a highly tailored mission: a private foundation can be appealing. It allows hiring staff, directly running programs, or giving internationally with fewer barriers (foundations can grant to individuals or foreign entities via expenditure responsibility; DAFs generally cannot grant to individuals and handle foreign grants with caution). This comparison is relevant to our main question because donors who maintain both a DAF and a foundation might try to combine their use. Understanding that each vehicle has its distinct sphere is important: the DAF is for one set of activities, the foundation for another. Mixing them (like transferring funds between) is rarely necessary if each is properly serving its purpose.
Complementary Use – DAFs with Foundations: There are legitimate strategies where someone uses both a foundation and DAF to complement each other without violating rules. For instance, a private foundation might handle large, structured grants or operate signature programs, while a DAF is kept for anonymous giving or gifts outside the foundation’s focus areas. Many savvy philanthropists do this: they run a foundation for the big stuff and keep a DAF on the side for personal donations (perhaps to controversial causes or simply for convenience when they want to donate spontaneously). In this arrangement, the donor never tries to transfer between the two; they treat them as separate channels. The DAF grants go directly to charities and the foundation grants go to charities. This is a comparison worth noting – it shows that you can have the best of both worlds if you’re careful. Issues only arise when one vehicle starts feeding the other (which, as we’ve drilled in, is restricted in one direction and questionable in the other).
To tie it together, donor-advised funds, private foundations, supporting organizations, and other philanthropic structures each have their niche. They can all be part of the philanthropic ecosystem, but they come with different rules. The clearest comparison is that a DAF is like a turn-key solution under a public charity, whereas a private foundation is a bespoke enterprise you run yourself. Both can do tremendous good in the community, but because of their differences, the IRS and state regulators keep a watchful eye on money movements between them. Now, let’s break down some key terms and entities to ensure we’re crystal clear on definitions before we explore federal vs. state rules and finish with pros, cons, and FAQs.
Key Terms and Entities Explained
Philanthropy comes with a lot of jargon. To make sure everything is understood, let’s explain some key terms, people, and entities relevant to donor-advised funds and private foundations:
| Term/Entity | Definition/Role |
|---|---|
| Donor-Advised Fund (DAF) | A giving account managed by a public charity (sponsoring organization) where a donor can advise how to distribute the funds to other charities. The donor gets an immediate tax deduction on contributions to the DAF. DAFs are subject to special IRS rules (e.g. no grants to individuals or non-charities, and as discussed, generally no grants to private non-operating foundations). |
| Sponsoring Organization | The public charity that hosts donor-advised funds. Examples include community foundations, universities, religious charities, or national entities like Fidelity Charitable or Schwab Charitable. The sponsor has legal control of DAF assets and is responsible for approving grants in compliance with IRS regulations. |
| Private Foundation (Non-Operating) | A 501(c)(3) charitable organization, typically funded by one donor/family/company, that mainly makes grants to other charities rather than conducting its own programs. Must pay out at least 5% of assets annually for charitable purposes. Commonly used for family philanthropy (e.g., The Ford Foundation, Rockefeller Foundation, etc., though some large ones are operating foundations). Donations to private foundations have lower tax deduction limits and are subject to stricter rules on investments and self-dealing. |
| Private Operating Foundation | A special type of private foundation that actively conducts charitable activities (like running a museum, zoo, research facility, etc.). To qualify, it must meet income and asset tests (e.g., spend 85% of income on its programs). Operating foundations enjoy some benefits similar to public charities, and importantly, can receive grants from DAFs under IRS rules. They are rarer in number compared to non-operating foundations. |
| Public Charity | In the context of this topic, a public charity is any 501(c)(3) that isn’t a private foundation – generally meaning it has broad public support or serves a public institution. Examples: churches, hospitals, universities, most nonprofits. Public charities can receive grants from both DAFs and private foundations freely. DAF sponsoring organizations are public charities. Public charities have no payout requirement and higher donor deduction limits, hence the IRS concern about funds flowing from them to private entities. |
| Internal Revenue Service (IRS) | The U.S. federal tax authority that regulates tax-exempt organizations. The IRS issues guidelines and enforces rules for DAFs and foundations. Key IRS rules include Section 4966 (taxable distributions from DAFs), Section 4942 (foundation payout requirements), and others on self-dealing and excess benefits. The IRS can impose excise taxes if rules are violated. They also release notices (like IRS Notice 2017-73) and work with Congress on pending regulations (as we saw with DAF proposals). |
| Pension Protection Act of 2006 (PPA 2006) | A significant federal law that, among many provisions, formally defined “donor-advised fund” in the tax code and laid out initial regulations. The PPA introduced the concept of taxable distributions from DAFs and essentially set the stage for the current DAF limitations (including implicitly disallowing grants to private non-operating foundations). It also tightened rules for supporting organizations and other areas of charitable law. |
| Expenditure Responsibility (ER) | A set of procedures required by law when a private foundation (or DAF sponsor) makes a grant to an organization that is not a qualified public charity. ER involves detailed oversight: the grant maker must investigate the recipient, require the funds be used only for charitable purposes, obtain reports back, and report it to the IRS. If a DAF ever tries to grant to a non-charity or private foundation, the DAF sponsor would have to do ER to avoid penalties. This is rarely done by DAF sponsors, as most simply prohibit such grants. |
| Self-Dealing | In private foundation context, self-dealing means any transaction between the foundation and its “disqualified persons” (insiders like major donors, foundation managers, or their family members) that is not allowed – e.g., the foundation paying a family member, or buying assets from a donor. For DAFs, a similar concept is the prohibition on donor or related parties receiving more than incidental benefit from a grant. A DAF grant that effectively benefits the donor (like paying a pledge or supporting a personal interest) could be seen as self-dealing/abuse. Both DAFs and foundations must avoid even the appearance of self-dealing in grants. |
| Qualified Charitable Distribution (QCD) | Slight tangent, but sometimes confused term: a QCD is a direct gift from an IRA to a charity (often used by those over 70½ to satisfy required distributions tax-free). QCDs cannot go to donor-advised funds or private foundations; they must go to public charities. This is another example of laws steering funds away from vehicles like DAFs/foundations into active charities. |
| Ray Madoff & Buffy Wicks | Key figures in the debate over DAF regulation. Ray Madoff is a law professor and vocal critic of DAF policies, arguing that too much money sits idle. She helped inspire the ACE Act and California proposals. Buffy Wicks is a California Assemblymember who introduced state bills to increase DAF transparency and accountability (like AB 1712). They represent the push for greater regulation at federal and state levels. On the other side, organizations like the Philanthropy Roundtable and community foundations often push back, highlighting positive DAF data (like high payout rates). Knowing these names helps understand the policy tug-of-war that shapes how DAFs and foundations are overseen. |
These terms and entities form the basic vocabulary of our discussion. With these definitions in mind, let’s move on to examine how federal rules compare to state-specific nuances. Understanding both levels of regulation is key to full compliance and strategic giving.
Federal Rules vs. State Differences
When it comes to donor-advised funds giving to private foundations, federal law is the primary authority – but state laws and regulators also play a role in the philanthropic landscape. Let’s break down the federal vs. state dynamics:
Federal Law – One Nation, One Rulebook: The IRS rules we’ve discussed (from the Internal Revenue Code and IRS regulations) apply uniformly across all states. No matter where you live or where your DAF sponsor is located, the prohibition on DAF grants to private non-operating foundations is in effect nationwide. Federal tax law dictates what’s allowed for tax-exempt organizations and charitable deductions, and these laws preempt any state-level law that might try to say otherwise. In practice, all DAF sponsoring organizations abide by the federal standards, and all private foundations must follow federal tax requirements (like the 5% payout rule, self-dealing rules, etc.). If you violate the federal tax rule by directing a DAF grant to an ineligible recipient, the IRS is the body that would levy penalties. So the core answer to “can a DAF give to a private foundation” doesn’t change from California to New York to Texas – federally, it’s disallowed except for private operating foundations.
State Oversight of Charities: Where states come in is through their oversight of charitable organizations and solicitation. Each state (usually via the Attorney General’s office or a charities bureau) has laws governing nonprofits that operate or fundraise in that state. Private foundations and public charities (including those sponsoring DAFs) often have to register with state authorities and file annual reports (like copies of the IRS Form 990). State regulators ensure that charitable assets are used properly and can take action against mismanagement or fraud. For example, if a private foundation in a state was found to be essentially a piggybank for the donor’s family and not truly doing charity, a state AG could investigate and bring enforcement (in addition to any IRS action). With donor-advised funds, state regulators historically didn’t focus much on them because DAFs were just internal funds of public charities. But as DAFs have grown huge, states are paying more attention. A state Attorney General could scrutinize a scenario like the Greenfield Foundation’s transfer to a DAF (from our example) under state charitable trust law, questioning if it violates donor intent or public interest.
California’s Pioneering Attempts: California in particular has been a hotspot for state-level action on donor-advised funds. In recent years, California legislators introduced bills (e.g., AB 1712 by Assemblymember Buffy Wicks) aiming to increase DAF transparency, reporting, and possibly impose a state-level minimum payout on DAFs. While these specific bills did not pass, the intent was clear: California sees a need to regulate DAF behavior to ensure funds don’t sit idle or get abused. The California Attorney General’s office even conducted a survey of DAF sponsors in the state, gathering data on how DAFs are used. One focus was whether private foundations were using DAFs to skirt their payout obligations (that reverse transfer issue). The results, released in 2022, didn’t show a rampant crisis, but regulators nonetheless hinted at new guidelines. For example, California’s AG has suggested that if a private foundation gives to a DAF, the foundation should track and ensure those dollars go out to charities relatively soon. They’ve also raised concerns about DAFs possibly altering donor intent on funds without oversight. State Charity Law Nuance: In many states, when a nonprofit dissolves or transfers substantial assets, the AG’s approval is required. This could come into play if, say, a private foundation decided to shut down and grant all its assets to a donor-advised fund (a not uncommon exit strategy for small foundations). The state AG might review that plan to ensure the foundation’s assets (which are impressed with a charitable trust) will continue to be used for the intended charitable purposes under the DAF. Most likely they’d allow it, but with conditions or at least an official nod. That’s a state-level nuance: winding down a foundation into a DAF is legal, but it’s wise to involve the state regulator to avoid any claim of diverting charitable assets.
Different States, Different Focus: Not all states are as proactive as California. States like New York or Massachusetts, which have robust nonprofit oversight, have also kept an eye on DAFs but haven’t yet introduced DAF-specific laws. They rely on existing charity laws – for instance, New York’s Charities Bureau could investigate if a DAF sponsor in NY was being misused or if a private foundation in NY did something questionable with a DAF.
States such as Minnesota or New Jersey may not have DAF legislation but follow whatever guidance the National Association of State Charity Officials (NASCO) might put out. In general, a trend is emerging: state officials are increasingly participating in national dialogues about DAFs. They recognize that while the IRS sets the baseline, states can enact complementary rules if they see fit. This could mean requiring DAF sponsors to disclose more data publicly or enforce certain payout policies for funds established in that state. Donors should be mindful: if you’re operating in a state that passes a DAF law, you’ll need to follow those rules on top of federal ones.
No State Can Allow What Federal Law Forbids: One comforting thought for donors confused by multiple jurisdictions – a state cannot legalize a charitable practice that federal tax law forbids. For example, no state could pass a law saying “DAFs based in our state are allowed to grant to private foundations.” Such a state law would be essentially void, because federal tax penalties would still apply and any reputable DAF sponsor wouldn’t violate federal law just because a state said “okay.” Generally, state laws can be stricter than federal law, but not more lax on issues of tax compliance. So the prohibition we’ve discussed is ironclad coast to coast. The nuances come in with additional restrictions or requirements.
Potential State Differences to Watch:
- Reporting Requirements: Some states may require DAF sponsors to report aggregate information, like total contributions, grants, etc. If a state noticed unusual grants (like large transfers to a single private foundation if it somehow occurred), they might flag it.
- Attorney General Guidance: State AGs might issue guidance to foundations in their state about transfers to DAFs, effectively discouraging it by saying it won’t count toward payout (even before federal rules change). They could also guide DAF sponsors on prudent management of funds.
- State Tax Credits/Deductions: A few states offer tax credits or additional deductions for certain charitable gifts (to, say, school scholarship funds, etc.). It’s possible a state could exclude DAF contributions from certain state tax benefits to encourage direct giving. Conversely, states could impose taxes or fees on DAFs or private foundations if they don’t meet state-determined payout thresholds (none do yet, but ideas have floated).
- Incorporation Jurisdiction: If your private foundation is a legal entity in a particular state, it must follow that state’s nonprofit corporation law or trust law. When interfacing with a DAF, that could mean the foundation’s board needs to pass a resolution or get approval to transfer assets to a DAF if dissolving. State law will guide those corporate governance steps.
Federal-State Collaboration: There is also collaboration between the IRS and state officials. They share information through the Form 990 series and coordinated enforcement programs. If a state investigator suspects a violation involving a DAF or foundation, they can refer it to the IRS, and vice versa. For the donor, this means that compliance isn’t just a federal matter; you want to be sure you’re kosher at all levels. The good news is, if you follow federal rules and general best practices, you’re almost certainly fine under state law too. It’s typically when people try clever end-runs that they run afoul of one or the other.
Example of State Nuance: We mentioned earlier the scenario of dissolving a foundation into a DAF. In one real case, a small family foundation in Illinois decided to terminate and move its remaining funds to the local community foundation’s DAF. Illinois law required them to notify the state Attorney General and get sign-off on the distribution plan (to ensure the funds still served the original charitable purposes). The AG’s office approved, but only after confirming the DAF would be earmarked for similar causes that the foundation supported. If the family had just moved the money without notice, they could have faced legal challenges later from the state or interested parties. This illustrates that state oversight, though often behind the scenes, ensures charitable continuity. They want to make sure no charitable dollars slip into unauthorized uses during transitions between vehicles.
In summary, federal law provides the fundamental rules (DAFs generally can’t give to private foundations), and state law adds an extra layer of oversight and nuance (ensuring charitable assets are protected and occasionally pushing for more transparency or faster payouts). As a donor or advisor, staying aware of both levels is wise. In practical terms: follow the federal rules to the letter, and keep an ear out for any state-specific guidance, especially if you’re in a state like California that’s actively engaged in DAF policy. Next, let’s recap some common mistakes to avoid (you can never be too careful) and then summarize the pros and cons of DAFs vs. foundations in a handy table.
Common Mistakes to Avoid
Even savvy philanthropists can trip up on the technicalities. Here are some common mistakes people make with donor-advised funds and private foundations – and how to avoid them:
- Assuming “Foundation” Means Public Charity: A very frequent mistake is thinking any organization with “Foundation” in its name is fair game for a DAF grant. In reality, many “XYZ Foundation” organizations are private foundations (or otherwise ineligible). Donors sometimes recommend grants to something like “Smith Foundation” without realizing it’s a private family foundation. The fix: Always verify the charity’s status. Most DAF sponsors have an online lookup or will check for you. If you see the IRS classification is a private foundation (Code section 509(a) designation), you know it’s not an eligible recipient from your DAF. Don’t go by name alone – plenty of public charities avoid the word foundation, and conversely, some public charities do have “Foundation” in their name (just to confuse things!). Quick example: The Make-A-Wish Foundation is actually a public charity, whereas the ABC Family Foundation is likely private. Double-checking saves embarrassment and time.
- Not Communicating with Advisors: Sometimes donors make moves between philanthropic vehicles (like dissolving a foundation, or considering a large grant) without consulting their tax or legal advisors. This can lead to missteps. For example, a family might impulsively decide to move funds from their foundation to a DAF at year-end for simplicity, not realizing the potential issues. Or a donor might pledge a gift from their foundation then try to pay it from their DAF. Lack of communication is the culprit. Avoid this by looping in your attorney or accountant when you plan inter-vehicle transfers or novel uses of your DAF. A short consultation can flag if something’s not allowed. Professional advisors often have seen these scenarios and can warn you (“Actually, you can’t do that with your DAF…here’s another idea.”). Remember that DAF sponsoring charities usually aren’t giving you personalized tax advice, so it’s on you to ask questions and involve the right experts.
- Treating a DAF Grant as Your Personal Gift: This is more psychological, but it has practical implications. When people give from a donor-advised fund, they sometimes still behave as if it’s their money giving the gift. For instance, a donor might try to direct how a recipient charity uses a DAF grant as if they were making a restricted grant from their own foundation. But technically, the grant is from the sponsoring charity, not you. Overstepping in directing DAF grants can cause issues. For one, if you exert too much control, it starts to resemble a private foundation distribution (which has more rules). Also, some donors mistakenly attempt to claim another tax deduction for a grant that comes out of their DAF (which is not allowed – you got the deduction when you put money into the DAF, you can’t deduct it again when it goes out to a charity). Solution: Adjust your mindset. Once money is in a DAF, act as a collaborator rather than an owner. Recommend grants, suggest purposes, but don’t try to micromanage beyond what the DAF sponsor allows. Definitely, don’t list DAF grants as your personal charitable donations on tax forms – that’s a mistake that could raise flags in an audit.
- Forgetting About “Incidental Benefit” Rules: We touched on this with pledges, but it shows up in other ways too. Another common mistake is using DAF funds for things like gala tables, charity auction items, or membership dues where you receive perks. With a private foundation, you also have to avoid these because they’d be self-dealing if a foundation paid for something benefitting a donor. With DAFs, donors sometimes think “Oh, I’ll have my DAF pay for the $5,000 table at the charity dinner.” However, since you (or your friends) will enjoy a fancy dinner worth $200, that’s a more-than-incidental benefit – strictly prohibited. The correct approach: Pay the non-deductible portion (the value of the dinner) from personal funds, and if anything, the DAF could grant the purely charitable portion (though many sponsors avoid splitting transactions like this to be safe). Similarly, a DAF can’t be used to win an auction item or to buy tickets to a fundraiser, even if the charity portion is large. It’s a mistake to assume “charitable cause = okay for DAF.” Always separate any personal benefit out. Private foundations know this rule well too; they can’t pay for donor perks either. If in doubt, ask the DAF sponsor if a particular grant is allowed. They will give a thumbs up or down pretty quickly on things like event sponsorships, memberships, etc., based on IRS guidelines.
- Misclassifying a Foundation’s Status: This one is specific but important for the exception case. Some donors hear that “operating foundations are okay” and try to label a target foundation as such without proper verification. Perhaps an organization describes itself in marketing as doing programs, so the donor assumes it’s a private operating foundation. If you recommended a grant thinking it’s allowed, but it turns out the organization doesn’t officially qualify as operating, you’re in trouble. The mistake is not looking at the IRS determination. A foundation’s 509(a) status (noted on their IRS letter and Form 990-PF) will tell you if it’s an operating foundation. Don’t rely on casual descriptions. Ensure the foundation has indeed elected and maintained operating status. This is more an error of due diligence – but a common one if donors or even fund advisors are not careful. The remedy: Check the foundation’s tax filings or Guidestar profile. It will either say “Private operating foundation” or not. If not, don’t push a DAF grant there. If yes, supply proof to the DAF sponsor. Clear communication and documentation prevent this mix-up.
- Overlooking State Filing Requirements: We discussed state nuances; a mistake some foundation managers make is failing to handle state approvals when converting a foundation to a DAF or merging assets. If you just transfer funds without following state law (like obtaining a court or AG sign-off when required), you could face legal challenges later. It’s less a tax mistake and more a legal process mistake, but worth noting. The fix: whenever you make a structural change (closing a foundation, moving funds, etc.), consult a nonprofit attorney familiar with that state’s laws to make sure you dot your i’s and cross your t’s. It’s a step that people occasionally skip in their eagerness to simplify their philanthropy.
By staying alert to these pitfalls, you can ensure your giving stays on the straight and narrow. Most mistakes occur from assumptions or lack of information. The solution is always to verify and ask if unsure. The charitable world has plenty of rules, but they can be navigated with a bit of care and advice. Now, let’s weigh the pros and cons of donor-advised funds versus private foundations in one concise table, to highlight why someone might use one, the other, or both (and how that relates back to our main question about interactions between them).
Pros and Cons: Donor-Advised Funds vs. Private Foundations
To wrap up our analysis, here’s a side-by-side look at the advantages and disadvantages of donor-advised funds compared to private foundations. Understanding these pros and cons will help clarify why funds don’t freely interchange between the two, since each has its own distinct role.
| Donor-Advised Fund (DAF) – Pros & Cons | Private Foundation – Pros & Cons |
|---|---|
| Pros: Simple and quick setup (open an account with minimal funding); Immediate full tax deduction in the year of contribution (cash deductible up to 60% of AGI, stock up to 30% of AGI); No annual payout requirement (you aren’t forced to grant out a percentage annually, though most do grant regularly); Low overhead – the sponsoring charity handles administration, tax filing, investments, legal compliance; Anonymity option – you can grant anonymously or under a fund name, preserving privacy (foundation grants are public via tax returns); Flexibility in contribution types – many sponsors accept complex assets like private stock or real estate and handle liquidation for charity. Cons: Donor control is advisory, not absolute – once you donate, the funds legally belong to the sponsor (they usually follow your wishes, but you can’t guarantee it or take funds back); No direct governance – you can’t employ staff or directly run programs from a DAF; Grants are restricted to IRS-qualified public charities (no grants to individuals, private non-operating foundations, or non-charities without special procedures); Fees – sponsors charge management fees (which can be higher as a percentage than a large foundation’s costs at scale); Less personal legacy – grants typically go out in the sponsor’s name (or your fund’s name), but there’s no perpetual entity named after your family unless the sponsor accommodates endowed naming. | Pros: Total donor control over assets and mission (within legal bounds) – the foundation’s board (often you/family) decides every investment and grant; Ability to hire staff, conduct your own charitable programs, run initiatives, and directly fund individuals or international causes (with proper oversight) – flexibility in charitable activities beyond just granting to public charities; Family legacy and visibility – a foundation can carry your family name, and you can continue it across generations, building a public philanthropic identity; Some expenses can be paid by the foundation (e.g., travel to conferences, salaries for staff or family who work on foundation business, etc., as long as reasonable); Longevity – foundations can exist in perpetuity, giving you a vehicle to institutionalize your giving and even involve third-party contributions over time. Cons: Significant administrative burden – requires setting up a legal entity, applying for tax-exempt status, keeping records, and filing a detailed 990-PF each year; Operating costs – legal, accounting, and excise taxes (foundations pay ~1.39% annual tax on investment income) plus potential staff costs; Lower tax deduction limits for donors (30% of AGI for cash, 20% for stock), which can limit how much you give in a year with full deductibility; Lack of privacy – tax returns list assets, grants, trustee names and salaries, which are publicly accessible, so anyone can see where money goes and sometimes the general asset size; Strict regulations – must distribute 5% of assets annually, avoid self-dealing transactions, limit business holdings, etc., which can be complex to navigate (violations incur penalties); Less flexibility to sunset or change – closing a foundation or altering its purpose requires legal processes and oversight (unlike a DAF which you can stop using anytime without fanfare). |
As the table shows, donor-advised funds shine in ease and tax advantages, whereas private foundations excel in control and legacy-building. These differences also explain why one can’t simply substitute for the other through backdoor grants. If you want the pros of both, many philanthropists use a combination: a foundation for certain needs and a DAF for others. But each must be operated within its own set of rules.
For instance, the higher deductibility of DAFs (a pro) is exactly why you can’t channel those funds into a private foundation (which has lower deductibility – a con). It would negate that intended drawback of a foundation. Conversely, the control you have in a foundation (a pro) comes with scrutiny, so you can’t exploit a DAF (where you have less control – a con) to augment your foundation’s coffers. Recognizing these pros and cons side by side helps reinforce the logic: donor-advised funds and private foundations serve related but distinct functions in philanthropy. Respecting their boundaries ensures you reap the benefits of each without running into trouble.
Finally, let’s address some frequently asked questions to cement our understanding of what donor-advised funds can and cannot do regarding private foundations. The quick yes/no format will clarify any remaining gray areas.
FAQ: Quick Yes/No Answers to Common Questions
Q: Can a donor-advised fund grant money to a private non-operating foundation?
A: No. Under IRS rules, DAFs are not allowed to make grants to private non-operating foundations. Such a grant would be considered an improper distribution and is blocked to prevent abuse.
Q: Are DAF grants to private operating foundations allowed?
A: Yes. Grants to private operating foundations are permitted in federal law, but only if the foundation qualifies as operating and certifies its status. The DAF sponsor will require proof before approving.
Q: If I have a private foundation, can I transfer its assets into a DAF?
A: Yes, but with caution. A private foundation can grant to a DAF (since DAF sponsors are public charities). However, that transfer may not count toward the foundation’s required 5% payout unless the funds are distributed to charities soon after. It’s legally allowed, but regulators frown on using DAFs to delay foundation payouts.
Q: Can a private foundation donate to another private foundation?
A: Generally no. Private foundations cannot simply give grants to other private non-operating foundations (it wouldn’t count as a qualifying distribution unless expenditure responsibility is done). They can give to private operating foundations with expenditure responsibility, but it’s uncommon. Essentially, foundations are expected to fund active charities, similar to DAF expectations.
Q: Do donor-advised funds have an annual payout requirement like the 5% rule for foundations?
A: No. There is currently no mandated payout percentage for DAFs. Sponsors encourage regular granting and the average payout is ~20% of assets yearly. Some policymakers have proposed a payout rule for DAFs, but none is law yet.
Q: If a DAF somehow made an improper grant, would I as the donor be penalized?
A: Not directly. The primary penalty would be on the sponsoring organization (20% excise tax on the amount) and possibly on fund managers. Donors don’t get fined under the DAF excise tax rules. However, a donor could face issues if it was part of a scheme (and your reputation could suffer). Fortunately, sponsors prevent improper grants before it gets to that point.
Q: Can I claim a tax deduction for a grant my DAF makes to a charity?
A: No. You only get a deduction when you contribute to the DAF itself. Subsequent grants from the DAF to end charities do not generate new deductions for you (the money is already in the charitable stream). Attempting to double-dip is not allowed.
Q: Is it better to use a DAF or a private foundation for philanthropy?
A: It depends. (Not a strict yes/no) – For most donors, a DAF is easier and provides greater tax benefits upfront. A private foundation is better if you want maximum control, a family legacy, or to run your own programs. Some do both. The key is to use each for what it’s best at, rather than trying to intermingle funds between them.
Q: Will the rules on DAF to foundation grants change in the future?
A: Unlikely to loosen. If anything, rules could tighten. Pending proposals aim to ensure funds don’t stagnate (like requiring DAF distributions within certain years). But no proposal is seeking to allow DAFs to fund private non-operating foundations – that prohibition is expected to remain. Always stay updated with current law, but don’t count on a future allowance that isn’t there now.