Community Foundation Donor-Advised Fund vs Private Foundation: What Families Should Know
Authored By Allie Gormier, CFP®, President of Mason’s Institutional Division, and Senior Investment Consultant and Kerry Balagtas, CPA, Senior Director of Tax & Financial Planning at Mason Investment Advisory Services, Inc.
Families who established a private foundation years ago are finding that the next generation has different priorities, increasingly asking a new question: does it still fit? Often, the shift starts with the next generation. Adult children and grandchildren frequently have less interest in maintaining a foundation’s legal structure, board governance, and annual filings than their parents or grandparents did, even when they share the same charitable goals.
For families in this position, a donor-advised fund (DAF) at a community foundation is one of the most common paths forward.
What Changes When You Move from a Private Foundation to a DAF
A private foundation is a separate legal entity. It requires its own legal formation, its own tax-exempt determination from the IRS, a governing board, and an annual Form 990-PF filing that becomes part of the public record. A donor-advised fund at a community foundation works differently. The fund is established under the community foundation’s existing tax-exempt status, so there is no new legal entity to form and no separate filing obligation by the DAF. The community foundation handles the paperwork, and the fund can typically be up and running quickly.
That shift, from managing compliance yourself to having it managed for you, is often the first thing families notice.
Why a Community Foundation, Specifically
Not all DAF sponsors are the same. Community foundations differ from commercial DAF providers in one meaningful way: local expertise paired with an ongoing relationship, rather than a self-service account.
- Local knowledge. Community foundation staff typically maintain close relationships with the nonprofits and needs in their region, which means they can help identify effective grantees rather than leaving donors to research on their own.
- Customized giving strategy. Grantmaking can be shaped around a family’s specific interests and matched to current and future community needs.
- Connection to other donors. Many community foundations host giving circles and convenings that connect donors with similar interests.
- Flexibility. There is no minimum distribution requirement, and donors may recommend grant amounts and timing, subject to approval by the community foundation.
- Privacy. Unlike a private foundation’s public 990-PF filing, DAF grants and fund size can remain confidential.
The Structural Trade-Offs
Beyond the relationship piece, there are substantial administrative and financial differences worth weighing.
A private foundation must file its own annual returns, maintain board governance, and pay excise tax on investment income. A DAF at a community foundation shifts each of those responsibilities to the institution: filings are handled on the donor’s behalf, there is no board to convene, and no excise tax applies. Deduction limits also differ; Contributions of cash and appreciated securities to a DAF generally qualify for more favorable adjusted gross income limitations than comparable contributions to a private foundation.
None of this means a private foundation is the wrong choice for every family. Some families value the direct control a foundation provides, including the ability to hire staff, set investment policy independently, and make grants to individuals in ways a DAF cannot. The right fit depends on how much administrative involvement a family wants going forward, and how that has changed since the foundation was originally established.
Comparison of Community Foundation Donor-Advised Funds vs. Private Foundations
| Considerations | Community Foundation DAF | Private Foundation (PF) |
| Ease of Establishment & Tax-Exempt Status | Fund is established quickly with a simple agreement, covered by the community foundation’s tax-exempt status | Corporation or trust required; IRS application for tax-exempt status may take 6+ months |
| Start-Up Costs | Minimal one-time fee, usually less than $250 | Varies by Foundation, but can typically be set up with a $10,000 minimum |
| Assets Required | Varies by Foundation; Generally $10,000 minimum | Varies, generally $2+ million, depending on foundation goals |
| Investment of Assets | Community foundation’s Investment Committee and Board oversee investment policy | PF must establish policies, select investments, and pay associated fees |
| Tax Deductions for Cash Gifts* | Up to 60% of Adjusted Gross Income | Up to 30% of Adjusted Gross Income |
| Tax Deductions for Long-Term Appreciated Publicly-Traded Securities | Fair Market Value up to 30% of Adjusted Gross Income | Fair Market Value up to 20% of Adjusted Gross Income |
| Excise Tax on Investment Income | No excise tax | 1.39% excise tax, with quarterly reports required |
| Payout Requirements | None, at donor discretion | Annual minimum payout of 5%, with penalties if not met |
| Annual Tax Filings & Returns | Filed by the community foundation; donors don’t have to track legislative or IRS changes | Must be filed by the PF, with detailed reporting schedules; the 990-PF is made available for public inspection |
| General Administration | Modest administrative fee, typically withdrawn quarterly or biannually. | Trustees must perform the work, contract, or hire staff |
| Grantmaking Control | Donor may recommend grants to any qualified 501(c)(3); grants approved by the community foundation’s board | Trustee-appointed board controls grantmaking to IRS-qualified charities |
| Grant Administration | Community foundation staff verifies IRS status, distributes grants, and confirms distribution | Trustees must perform the work, contract, or hire staff |
| Grantmaking Support | Community foundation monitors and researches nonprofits, offering expertise on local needs | Trustees must perform the work, contract, or hire staff |
| Privacy | Fund size and grants are confidential | No; IRS 990-PF is a public record |
| Liability & Risk Insurance | Provided by the community foundation at no cost to donor | Must be purchased by the PF |
*Beginning in 2026, for taxpayers who itemize, charitable deductions will be subject to a 0.5% of AGI floor, and an additional limitation will apply for those in 37% tax bracket.
Considering a Change
For families weighing whether to wind down a private foundation, establishing a donor-advised fund at a community foundation is worth exploring as a next step. A conversation with a financial advisor, tax advisor, and the community foundation’s staff can help clarify whether the shift makes sense given the family’s current goals.
Frequently Asked Questions
Can a private foundation be converted into a donor-advised fund?
A private foundation can transfer its assets to a donor-advised fund at a community foundation as part of winding down its operations, effectively replacing the foundation’s structure with the DAF going forward.
Which offers more control, a donor-advised fund or a private foundation?
A private foundation offers more direct control since the donor’s own board governs investment decisions and grantmaking. With a DAF, the donor makes recommendations, and the sponsoring community foundation retains legal authority over how funds are ultimately distributed.
Can a donor-advised fund make a grant to a private foundation?
Generally, no. The IRS restricts DAF grants to qualified public charities, and most private foundations do not meet that classification, so a DAF typically cannot grant directly to a PF.
Can a private foundation make a grant to a donor-advised fund?
Yes. A private foundation can make a qualifying distribution to a DAF at a community foundation, which is one reason some families use both vehicles together rather than choosing one exclusively.
How much does it cost to run a private foundation compared to a DAF?
A private foundation typically costs more to maintain, with ongoing expenses for filings, governance, and potentially staff or outside administration. A DAF at a community foundation generally involves a modest, predictable administrative fee instead.
What is the minimum amount needed to open a donor-advised fund?
Minimums vary by sponsoring organization, and community foundation DAFs often start with a modest initial contribution. A private foundation has no legal minimum, but it is typically funded at a substantially higher amount to justify the cost of formation, annual filings, and ongoing administration.
Can a donor-advised fund make grants to individuals, such as scholarships?
Not directly. DAFs are restricted to grants to qualified 501(c)(3) organizations, while private foundations have more flexibility to make grants to individuals, including scholarships, under specific IRS rules. That said, families interested in supporting scholarships still have options through a community foundation, which can establish a separate scholarship fund structured to meet IRS requirements for individual awards.
Is it common for families to use both a private foundation and a donor-advised fund?
Yes. Some families maintain a private foundation for larger strategic grantmaking while using a DAF for simpler, more flexible giving, rather than treating the two as mutually exclusive.
Have questions about your current charitable giving structure?
Our Institutional team at Mason can help evaluate whether a donor-advised fund, a private foundation, or a combination of both best fits your family’s philanthropic goals. Click here to schedule a conversation with a Mason Institutional Consultant.
This article is for informational purposes only and does not constitute legal, tax, or investment advice. Mason is a fee-based advisory firm. Please consult with a qualified attorney, tax professional, or financial advisor regarding your specific situation.
About the Authors
Allie Gormier, CFP®, President, Institutional Division is President of the Institutional Division at Mason Investment Advisory Services, which she joined in July 2008. She serves on Mason’s Executive Team and Investment Committee. Allison earned a Certificate in Financial Planning from Georgetown University in 2011 and received her CERTIFIED FINANCIAL PLANNER™ certification in 2012. She holds a Bachelor of Science in Finance from George Mason University and previously served as a financial advisor in the Global Wealth Management Division at Merrill Lynch. Outside of work, Allison enjoys spending time with her family, baking, and traveling.
Kerry Balagtas, CPA, Senior Director of Tax and Financial Planning, joined Mason Investment Advisory Services in September 2016. She received her Certified Public Accountant designation in 1998 and holds a Bachelor of Science in Business Administration with a concentration in Accounting from Marymount University. Kerry previously served as a tax manager at Reznick, Fedder & Silverman (now CohnReznick), and as a senior tax associate at a large defense contractor in Northern Virginia and at a public accounting firm in DC. Outside of work, she enjoys playing tennis, reading, and spending time with her husband and four children.
