Private Foundations and Donor-Advised Funds (LI)

PRIVATE FOUNDATIONS AND DONOR-ADVISED FUNDS

Critical Differences That May Matter to Your Clients

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have changed. Private foundations can be established quickly, with as little as $250,000, and, thanks to the advent of outsourcedmanagement firms, are as easy to administer as a DAF but with some potentially important advantages. Here are 10: 1. A private foundation is a legal entity controlled by the founder, whereas a DAF is controlled by the board of its public charity sponsor. Maintaining control of their hard- earned assets is a common priority for high-net-worth individuals. Happily, because private foundations are freestanding legal entities, they provide complete control for your client. Every grant decision and investment choice is 100% within your client’s grasp. For grant and investment choices, a DAF offers less control because technically, the donor’s wishes are “recommendations.” Although these recommendations are almost always honored, final decision-making authority rests with the sponsor. For clients for whom “almost always” is

any advisors recommend a charitable vehicle for their philanthropic clients as part

of their overall wealthmanagement strategy. And for many advisors, the default recommendation for high- net-worth individuals and families is often a donor-advised fund (DAF). After all, they’re quick to set up, simple for the client to use, and require minimal ongoing effort to manage. Although DAFs are a great option for many, in certain circumstances, a private foundation could be a better choice. Neglecting to consider this option could be a potential disservice for your philanthropic clients. Unfortunately, a private foundation is often dismissed out of hand because advisors may believe that they are inherently expensive, complicated, and time-consuming, both to set up and to manage. And unless the client is going to fund it with at least $5 million, many contend it just doesn’t make sense. That was true 20 years ago, but not today. Times and private foundations

Although DAFs are a great option for many, in certain circumstances, a private foundation could be a better choice.

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