If you plan to make significant charitable gifts over a long period of time, a donor-advised fund (DAF) can be an attractive alternative to a private foundation.

What is a Donor-Advised Fund?
While private foundations are separate charitable entities operated by their donors, a DAF is merely an account set up with a host organization, such as a community foundation or educational institution. You make contributions to the account, and the organization makes grants to qualifying charities in your name. Although the organization legally owns your contributions and has ultimate control over grants, you can advise the organization on how to invest your contributions and how grants should be made.

Donor-advised funds have become popular recently because they require less money, time, legal assistance, and administration than private foundations. DAFs also enjoy greater tax advantages.

What are the Advantages?
Generally, you can open a DAF with a smaller initial contribution than would be required with a private foundation (as little as $10,000). And because DAFs are qualified public charities, you generally get an immediate income tax deduction for your contributions (subject to the usual limitations).

Additionally, while private foundations are required to distribute a minimum of 5% of their assets each year, DAFs currently have no such minimum distribution requirement. You can let your account build up tax free for many years, deferring distributions until a later date. Further, DAFs are not subject to excise tax as private foundations are.

Finally, DAFs don't need to fulfill many of the reporting and filing requirements that are imposed on private foundations. And because the host organization handles any legal, administrative, and filing requirements (including tax returns), you're completely freed from these responsibilities.