CHARITABLE PLANNING

Gillian Howell

Your clients can maximize their giving by using foundations and donor-advised funds in tandem.

HEN FAMILIES AND THEIR ADVISORS CONTEMplate establishing a charitable vehicle, they often compare and contrast the advantages of using either a private foundation or a donor-advised fund. However, for many donors, the best choice isn’ t to use just one or the other but both. When the two vehicles are used in combination, they can be synergistic, giving your clients a wide range of options to maximize their philanthropic and wealth-management outcomes.

Private foundations are typically established with a significant endowment by individuals, families or corporations that appoint their own boards of directors and make grants as the main form of giving. Conversely, donor-advised funds are charitable giving accounts that individuals, families or corporations establish at a sponsoring organization, such as a financial institution or a community foundation. Donors contribute to the funds and recommend grants to charities over time.

Here are some of the benefits conferred by using these popular vehicles together in a two-prong approach.

Tax Benefits

Such an approach offers increased tax benefits as a major advantage. The contributions made to both private foundations and donor-advised funds are generally tax-deductible, and by distributing charitable assets across these two structures, you can help clients maximize their deductions— and free

In a recent poll of high-net-worth investors about their priorities, 87 % cited passing on their core values to younger generations. up additional resources so they can give even more. This can be especially advantageous for clients with significant income in a particular year.

For example, someone with adjusted gross income( AGI) of $ 90 million from the sale of a business could contribute $ 27 million( or 30 % of their AGI) to a private foundation and an additional $ 18 million( or 20 % of their AGI) to a donor-advised fund, which gives them the maximum allowable charitable deduction for their asset structure of 50 % of AGI, or $ 45 million. That reduces their tax burden and can accelerate critical funding to those in need.

Balancing Transparency And Discretion

Another reason to use two vehicles is that it can give clients more choice about how much anonymity they want when giving.

Private foundations cannot give anonymously.( They are legally required to record their grants on their tax returns.) In most instances, that transparency is constructive since it helps a philanthropist attract public awareness and garner support for their favored causes. However, sometimes, they might need or want to give grants anonymously, something they can do through a donor-advised fund. That allows them some flexibility if they want to give outside their stated mission or provide discretionary granting privileges to family members.

22 | FINANCIAL ADVISOR MAGAZINE | JUNE 2025 WWW. FA-MAG. COM