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Comparison with a Private Foundation
Selecting the vehicle for your charitable giving involves many factors, including
how much money is available to be contributed and when, whether family members are
available as volunteers, and how much operational control you need.
Although you might be more familiar with a private foundation than some other vehicles, that vehicle actually may not be the best route for your charitable giving. Donor advised funds are a terrific alternative to establishing a private foundation, and allow you to achieve your charitable goals quickly, efficiently, and tax-effectively.
A donor advised fund is a component fund of The Dallas Foundation that gives the donor the right to recommend grant recipients periodically. Because the Foundation is a public charity, gifts to donor advised funds receive the most generous tax treatment. The fund carries a name selected by the donor and all grants are made in the name of that fund.
Donor advised funds have a number of advantages over private foundations, as shown on the comparison chart on the next page. If you would like to discuss whether these options would work for you, please contact Gary W. Garcia at gwgarcia@dallasfoundation.org.
| Issue |
The Dallas Foundation
A Community Foundation |
Private foundation |
| Definition of Terms: TDF = The Dallas Foundation, PF = Private Foundation, AGI = Adjusted Gross Income, FMV = Fair Market Value |
How created |
By executing agreement with TDF, a process that takes less than a day |
PF must file articles of incorporation or trust documents and qualify with IRS, process that can take up to one year |
Amount need to establish |
$25,000 to open; average fund size is $150,000 |
$2-$5 million usually required to justify startup and ongoing expenses |
Assets that may be contributed |
Wide range, including
Cash
Publicly traded stock
Restricted stock
Real estate
Minerals
Limited partnership interests |
Wide range; some limits in PF rules on "excess holdings" of particular stocks |
Startup costs |
None, unless assets to be contributed require unusual costs (such as environmental review on gift of land) |
Similar to incorporating a company, about
$5,000 - $10,000 on average |
Income Tax Deductions:
Cash
Publicly Traded Securities
Closely Held Stock/Real Estate |
Up to 50% of AGI
Up to 30% of AGI, based on FMV
Up to 30% of AGI, based on FMV |
Up to 30% of AGI
Up to 20% of AGI, based on FMV
Deduction is limited to the donor’s cost basis or FMV, whichever is lower, up to 20% of AGI |
Carryover available |
Five years |
Five years |
Donor Involvement |
Donor offers grant recommendations, subject to review by TDF for distribution to qualified 501 (c)(3) organizations |
Donor or board of directors controls operations, investments and grantmaking, subject to special IRS restrictions for PFs |
Family members or friends as volunteers |
Can participate in grantmaking activities, but TDF has administrative staff to handle operational details |
Will be needed to run the foundation unless staff will be hired
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Grantmaking Support |
TDF staff can help identify and assess grantees, advise on community needs and verify status of grantees |
Grantmaking activities must be conducted by foundation managers or hired staff |
Annual operating costs
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Administrative and investment fees start at 1.4% for funds and decrease as funds grow larger |
Vary according to the size and complexity of the foundation |
Excise tax on investment income |
Does not apply |
1% or 2% on net investment income and substantial excise taxes imposed for failure to meet minimum payout requirements |
Self-dealing rules |
Does not apply |
Strict regulations prohibit most transactions between PF and its donors (including related persons and companies) |
Minimum payouts |
Does not apply |
Must pay out at least 5% of investment asset value regardless of income |
Annual tax return |
TDF files annual Form 990 for all funds |
Must file annual Form 990-PF, which includes all contributions to, and grants from, the PF |
Public disclosure of tax return |
Last 3 years' returns available to anyone; donor lists are confidential; grant lists don't identify fund source |
Last 3 years' returns available to anyone, including contributions and grants |
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