Giving vehicles: DAFs vs Foundations
In this article, we outline the major differences between DAFs and foundations, to help you decide which giving vehicle is right for you.
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DAFs are tax-efficient giving vehicles which offer several advantages, including considerable flexibility, over traditional options like private foundations (independent legal entities set up by individuals, families, or corporations for charitable purposes). Because of these advantages, we believe a DAF can be an ideal way to do your giving.
The differences between DAFs & Foundations
Explore the table below to uncover the major differences between giving via a DAF and giving via a foundation:
DAF | US Private Foundation / UK Charitable Foundation/Trust | |
Size | Minimum opening balance often starts around $10,000 / £10,000 (varies by provider). Suitable for donors of almost any level. | US: Generally most cost-effective for $10M+ in charitable assets. UK: Generally most cost-effective for £5M-£10M+, although smaller foundations exist. |
Set-up | Quick and straightforward. No legal entity required; the sponsoring charity establishes the account. | US: Requires creating a 501(c)(3), obtaining IRS recognition, appointing a board, and engaging legal and tax advisers. UK: Requires establishing a registered charity (typically a charitable trust, CIO, or charitable company), drafting governing documents, appointing trustees, and registering with the Charity Commission (where required). |
Admin | Minimal. The DAF sponsor performs due diligence, grant processing, tax reporting, and regulatory compliance. | US: Significant ongoing administration, including board meetings, recordkeeping, grant administration, tax filings, compliance, audits (where applicable), and governance. UK: Trustees are responsible for governance, annual reporting, accounts, regulatory filings, grant administration, compliance with Charity Commission guidance, and ongoing oversight. |
Annual costs | Typically ≤0.85% of assets annually, plus underlying investment fees (varies by provider). | US: Often 2.5-4% annually when legal, accounting, audit, administration, and governance costs are included, plus a 1.39% excise tax on net investment income. UK: Costs vary considerably depending on size and complexity. Smaller foundations often incur legal, accounting, audit (where required), and governance costs that make them relatively |
US tax treatment | Cash: deductible up to 60% of AGI. Long-term appreciated assets: deductible up to 30% of AGI, generally at fair market value. Capital gains tax is generally avoided on donated appreciated assets, subject to IRS rules. | Cash: deductible up to 30% of AGI. Appreciated assets: generally deductible up to 20% of AGI. Publicly traded securities are generally deductible at fair market value; many other assets are deductible at cost basis, subject to IRS rules. Not applicable in the UK. |
UK tax treatment | UK taxpayers can generally claim Gift Aid on eligible cash donations. Gifts of qualifying listed shares and certain securities receive UK income tax relief and exemption from Capital Gains Tax, subject to HMRC rules. | Similar tax treatment applies to gifts made directly to the foundation. UK taxpayers may generally claim Gift Aid on eligible cash gifts, and qualifying shares and securities may receive income tax relief and Capital Gains Tax exemption, subject to HMRC rules. Not applicable in the US. |
Minimum annual distribution | Typically no statutory payout requirement, although many sponsors require accounts to remain active by recommending grants periodically. | US: Must distribute approximately 5% of assets annually for charitable purposes. UK: No fixed annual payout requirement. Trustees must apply charitable funds in furtherance of the charity's purposes and comply with Charity Commission guidance. |
Grantmaking | May grant to qualifying public charities and eligible international nonprofits (subject to due diligence). Cannot make grants directly to individuals. | US: Can make grants to public charities, other foundations, international organizations (subject to expenditure responsibility or equivalency determination), and may make grants to individuals under specific IRS rules. UK: Can make grants to registered charities and, where permitted by the governing documents and charitable purposes, may also provide grants to individuals experiencing hardship or in furtherance of the charity's objects. |
Investment flexibility | Investment options are determined by the sponsoring organization, though many DAFs allow a range of portfolios and, above certain thresholds, advisor-managed accounts. | US: Broad investment flexibility, subject to fiduciary duties and applicable regulations. UK: Trustees have broad investment powers subject to UK charity law, governing documents, and fiduciary duties. |
Successors | Can name several successors (and give each a different %); must be 18 or older | Should define a succession plan for continued decision making and leadership transition |
Role of advisors | Donors can designate multiple successors and allocate advisory privileges among them (subject to sponsor policies). | US: Governance continues through the board according to the foundation's governing documents. UK: Succession is governed by the charity's governing documents and trustee appointment procedures. |
Privacy | Contributions and grants can often be made anonymously. Individual grant recommendations are generally not publicly disclosed. | US: Annual Form 990-PF is publicly available, including grants, trustees, assets, and key financial information. UK: Annual reports and financial statements filed with the Charity Commission are generally public, although individual donors can often remain private. |
DAF
Minimum opening balance often starts around $10,000 / £10,000 (varies by provider). Suitable for donors of almost any level.
Quick and straightforward. No legal entity required; the sponsoring charity establishes the account.
Minimal. The DAF sponsor performs due diligence, grant processing, tax reporting, and regulatory compliance.
Typically ≤0.85% of assets annually, plus underlying investment fees (varies by provider).
Cash: deductible up to 60% of AGI.
Long-term appreciated assets: deductible up to 30% of AGI, generally at fair market value. Capital gains tax is generally avoided on donated appreciated assets, subject to IRS rules.
UK taxpayers can generally claim Gift Aid on eligible cash donations. Gifts of qualifying listed shares and certain securities receive UK income tax relief and exemption from Capital Gains Tax, subject to HMRC rules.
Typically no statutory payout requirement, although many sponsors require accounts to remain active by recommending grants periodically.
May grant to qualifying public charities and eligible international nonprofits (subject to due diligence). Cannot make grants directly to individuals.
Investment options are determined by the sponsoring organization, though many DAFs allow a range of portfolios and, above certain thresholds, advisor-managed accounts.
Can name several successors (and give each a different %); must be 18 or older
Donors can designate multiple successors and allocate advisory privileges among them (subject to sponsor policies).
Contributions and grants can often be made anonymously. Individual grant recommendations are generally not publicly disclosed.
US Private Foundation / UK Charitable Foundation/Trust
US: Generally most cost-effective for $10M+ in charitable assets.
UK: Generally most cost-effective for £5M-£10M+, although smaller foundations exist.
US: Requires creating a 501(c)(3), obtaining IRS recognition, appointing a board, and engaging legal and tax advisers.
UK: Requires establishing a registered charity (typically a charitable trust, CIO, or charitable company), drafting governing documents, appointing trustees, and registering with the Charity Commission (where required).
US: Significant ongoing administration, including board meetings, recordkeeping, grant administration, tax filings, compliance, audits (where applicable), and governance.
UK: Trustees are responsible for governance, annual reporting, accounts, regulatory filings, grant administration, compliance with Charity Commission guidance, and ongoing oversight.
US: Often 2.5-4% annually when legal, accounting, audit, administration, and governance costs are included, plus a 1.39% excise tax on net investment income.
UK: Costs vary considerably depending on size and complexity. Smaller foundations often incur legal, accounting, audit (where required), and governance costs that make them relatively
Cash: deductible up to 30% of AGI.
Appreciated assets: generally deductible up to 20% of AGI. Publicly traded securities are generally deductible at fair market value; many other assets are deductible at cost basis, subject to IRS rules.
Not applicable in the UK.
Similar tax treatment applies to gifts made directly to the foundation. UK taxpayers may generally claim Gift Aid on eligible cash gifts, and qualifying shares and securities may receive income tax relief and Capital Gains Tax exemption, subject to HMRC rules.
Not applicable in the US.
US: Must distribute approximately 5% of assets annually for charitable purposes.
UK: No fixed annual payout requirement. Trustees must apply charitable funds in furtherance of the charity's purposes and comply with Charity Commission guidance.
US: Can make grants to public charities, other foundations, international organizations (subject to expenditure responsibility or equivalency determination), and may make grants to individuals under specific IRS rules.
UK: Can make grants to registered charities and, where permitted by the governing documents and charitable purposes, may also provide grants to individuals experiencing hardship or in furtherance of the charity's objects.
US: Broad investment flexibility, subject to fiduciary duties and applicable regulations.
UK: Trustees have broad investment powers subject to UK charity law, governing documents, and fiduciary duties.
Should define a succession plan for continued decision making and leadership transition
US: Governance continues through the board according to the foundation's governing documents.
UK: Succession is governed by the charity's governing documents and trustee appointment procedures.
US: Annual Form 990-PF is publicly available, including grants, trustees, assets, and key financial information.
UK: Annual reports and financial statements filed with the Charity Commission are generally public, although individual donors can often remain private.
Maximize your impact with a DAF
While foundations offer complete control for the donor, they can be time, resource, and cost-intensive to establish and maintain. Donor Advised Funds, by contrast, are quick and easy to set up, and put minimal admin burden on the donor.
By taking the hassle out of giving, a Donor Advised Fund affords you more time and energy to develop a giving strategy and decide where to give. Since some charities are up to 1000x more effective than others. At Founders Pledge we believe finding and funding the most impactful charities is how to do the most good possible.
Our DAF offerings are more than just a giving vehicle. Our comprehensive giving services and team of experts are on hand to support you at every stage of your giving journey. While we handle the logistics and due diligence of grant-making from your DAF, you can take advantage of our in-house research and high-impact giving recommendations, and collaborate with one of our philanthropic advisors to develop a personalized giving portfolio aligned to your values. Discover more here.
*Founders Pledge cannot provide tax advice and the above is not intended as such. Please consult with your tax or financial advisor for a full understanding of what moving money into the charitable sector (including using a DAF) means for you.