As your wealth grows, so does your ability to make a real difference. Many high-net-worth individuals reach a point where it makes sense to move beyond one-off donations and build a more intentional, structured approach to giving: one that reflects their values, maximizes their tax benefits, and creates a lasting philanthropic legacy.
When that moment comes, two vehicles tend to dominate the conversation: donor-advised funds (DAFs) and private foundations. Both offer meaningful tax advantages and the ability to give strategically over time. But they're built for very different kinds of givers, and choosing the wrong one can cost you tens of thousands of dollars a year in unnecessary administrative overhead, legal fees, and lost giving potential.
For most donors giving less than $1 million per year, a donor-advised fund is the clear choice. And with Daffy, it's never been simpler or more affordable to get started. Here's what you need to know to make the right decision for your philanthropic goals.
What Is a Donor-Advised Fund?
A donor-advised fund is a charitable giving account sponsored by a public charity, like Daffy, where you contribute assets, receive an immediate tax deduction, and then recommend grants to the nonprofits you care about over time. Your contributed assets can be invested and grow tax-free, meaning more money ultimately reaches the causes you care about.
With Daffy, opening a donor-advised fund takes minutes. Daffy supports accounts ranging from a few hundred dollars to over $10 million, with membership starting at just $36/year and caps at $480/year. For larger accounts, Daffy also offers advanced features including the ability to add a financial advisor to your account, build a custom investment portfolio, and custom liquidation recommendations of donated stock — giving you the kind of sophisticated tools typically reserved for private foundations, without the overhead. Once your account is funded, you can give to nearly any IRS-qualified 501(c)(3), instantly.
What Is a Private Foundation?
A private foundation is an independent legal entity, typically established by an individual, family, or corporation, that is incorporated as its own 501(c)(3) organization. It offers maximum control and can be structured to outlast the founder by generations. But that control comes with significant responsibilities: legal incorporation, IRS approval (which can take 3–12 months), ongoing governance, annual tax filings (IRS Form 990-PF), and a mandatory minimum distribution of 5% of assets each year.
Most financial advisors recommend a minimum of $1-5 million in initial funding just to make a private foundation economically viable once administrative costs are accounted for.
The Core Trade-Offs
The fundamental question when choosing between a DAF and a private foundation isn't about how much you want to give: it's about how much time, money, and complexity you're willing to take on in exchange for greater control.
A private foundation gives you a bit more control. A donor-advised fund like Daffy gives you more of your time, more of your money going directly to charity, and considerably less legal and administrative overhead.
Side-by-Side Comparison
| Donor-Advised Funds | Private Foundations | |
|---|---|---|
| Minimums | $0 with Daffy | Hundreds of thousands of dollars |
| Startup costs | $0 with Daffy | ~$15,000 |
| Ongoing operational expenses | $3–$40/mo with Daffy | Overhead expenses plus 1–2% excise tax |
| Tax on investment income | $0 | 1–2% net investment income tax per year |
| Tax deduction (cash donations) | Up to 60% of AGI | Up to 30% of AGI |
| Tax deduction (appreciated assets) | Up to 30% of AGI | Up to 20% of AGI |
| Minimum annual distribution | None required | 5% of assets annually |
| Setup time | Minutes with Daffy | Months |
| Lifespan | Flexible | In perpetuity |
| Personalization | Name your fund & create your mission | Name your fund & create your mission |
| Family involvement | Include family in donation discussions without making them responsible for governance and costs | Allow family members to serve on a board and possibly as paid staff |
| Ease of giving | Automated process with Daffy | Requires an investment advisor |
| Donation options | Donate to any 501(c)(3) public charity | Donate to any 501(c)(3) public charity & individuals for charitable purposes |
| Tax reporting | Daffy provides a simple tax summary for your filing | Annual Form 990-PF filing required |
| Option to support charities anonymously | Yes | No |
A Donor-Advised Fund Like Daffy Is Better When...
Here are some of the most significant benefits to consider.
- Less money going to administration, and more to charity: A private foundation is a nonprofit organization and requires a board of directors, legal and financial professionals, and potentially even hired staff if you don't want to manage the foundation yourself. All of this entails significant overhead and can dilute the amount of money actually donated to charitable causes. Startup costs average around $15,000 and typically require a minimum initial contribution of $250,000. With Daffy, there are no setup fees, no legal filings, no board minutes to record — membership costs as little as $3/month to $40/month.
- Low maintenance: To create a private foundation, you must apply to become a tax-exempt 501(c)(3) organization through the IRS, and the foundation must file a Form 990-PF each year. Donor-advised funds don't require any of these tax forms. Daffy automatically tracks all of your contributions and donation activity within your account and provides a simple tax summary at the end of the year, making it easy to itemize eligible deductions without hiring anyone to help.
- Increased confidentiality: Donor-advised funds have no public reporting requirements, which means your individual information is never published unless you want that recognition. Private foundations, on the other hand, must file public tax returns that include the names of donors and board members, financial details of grants made, and operating expenses — opening every giving decision to public scrutiny.
- You want to give in real time, from anywhere: With Daffy, you can respond to a natural disaster, community crisis, or cause you feel moved by in seconds, directly from the iOS app or daffy.org. There's no paperwork, no board approval, no waiting. For givers who want the ability to act on generosity the moment they feel it, that immediacy matters.
- You can automate your giving: Daffy lets you set up automatic contributions on a weekly or monthly basis, and recurring donations to your favorite nonprofits on a monthly, quarterly, or annual schedule. It's one of the most effective ways to make giving a consistent habit rather than a once-a-year obligation. Private foundations require a formal approval process before any donation is issued.
- You can commit to giving as a family: Daffy's family accounts let you create individual profiles for each family member while maintaining a shared fund and a shared annual giving goal. You can pass down your values and involve your children in charitable decisions, without creating a legal entity that requires formal governance.
- Better tax considerations: Private foundations are required to pay a 1–2% net investment income tax each year. Donor-advised funds are not subject to this additional tax. DAFs also offer higher deduction limits: cash donations are deductible up to 60% of AGI versus 30% for private foundations, and appreciated assets up to 30% of AGI versus 20%. For a donor with $1 million in annual income, that difference is significant:
| Donor-Advised Fund | Private Foundation | |
|---|---|---|
| Cash donation limit | $600,000 (60% of AGI) | $300,000 (30% of AGI) |
| Stock donation limit | $300,000 (30% of AGI) | $200,000 (20% of AGI) |
| Taxes | Immediate tax deduction | Immediate tax deduction |
| Reporting | No tax filing required — simple summary from Daffy | Annual tax return required |
A Private Foundation Is Better When...
There are specific scenarios where a private foundation genuinely offers capabilities a DAF cannot match.
- You want to employ family members or have them serve on the board. A private foundation is a way to formally involve multiple generations in your shared giving values, including paying family members reasonable compensation as staff or board members. DAFs don't have this capability.
- You want to make tax-deductible grants to individuals. A private foundation allows you to use tax-deductible contributions to make donations directly to families and individuals facing hardship, and to fund scholarships for specific individuals. DAF grants must go to IRS-qualified 501(c)(3) organizations — they cannot flow directly to individuals or families.
- You want to run your own charitable programs. Some donors don't just want to fund other organizations — they want to build their own. Private foundations can develop and operate their own charitable programs and initiatives. DAFs are a grantmaking vehicle, not an operating one.
TL;DR: A DAF Is Best for the Majority of Donors
A private foundation is a powerful tool, but it's designed for donors who are prepared to run what is essentially a small nonprofit organization. For most high-net-worth individuals who want to give more strategically, tax-efficiently, and consistently, a donor-advised fund like Daffy delivers nearly all the same benefits with a fraction of the complexity and cost.
With Daffy, you can contribute assets, automate your giving, involve your whole family, and give anonymously to nearly any nonprofit in the U.S. — all from your phone, for as little as $36/year - $480/ year.
Ready to start giving smarter? Open your Daffy account today
Please note that the information contained on this page is for educational purposes only and should not be considered tax or investment advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific situation, please consult with a tax and/or investment professional.