Donor-advised funds (DAFs) are charitable giving accounts used by many Americans as a flexible, accessible way to give to charities. Popular with individual donors, DAFs are also sometimes used by private foundations to facilitate their donations. With unique features that encourage giving, DAFs have been used by some foundations to pool resources, streamline administrative tasks, and set aside seed capital for a group that is pursuing IRS determination as a charity.
In the primer, When Private Foundations Give Through DAFs, the Roundtable’s Jack Salmon explores the valuable ways private foundation use DAFs.
As the primer explains, private foundations give through DAFs for many reasons including:
- To streamline giving by pooling resources with other donors, ensuring charities receive maximum impact without excessive administrative burdens.
- To allow small private foundations to leverage the economies of scale and investment expertise inherent in DAF structures.
- To streamline administrative and legal processes for scholarship funds.
- To mitigate bookkeeping difficulties for challenge and multi-year capital grants.
- To foster harmony when family foundations have varied philanthropic interests.
- To provide a strategic avenue for having a dispersed geographical impact.
- To donate internationally. Smaller foundations may not have the resources to comply with paperwork and due diligence requirements. Giving through a DAF allows them to outsource these functions.
- To buy time for giving decisions when a founder passes or when there is an administrative change in a foundation.
- To issue a one-time, off-mission grant, such as COVID relief or wildfire disaster recovery, without opening the door for further solicitations.
- To train future generations in grantmaking.
- To protect donor information when granting to a controversial cause.
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When Private Foundations Give Through DAFs: Exploring the How and Why of This Practice
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