<h1>Private Foundation <br />vs.<br />WaterStone Donor Advised Fund</h1>

For a print version of this page, <a href="/img/Private-vs-DAF.pdf" title="download the pdf">download the pdf</a>.

In recent years, private foundations have come under increasing scrutiny by Congress and the Internal Revenue Service. Due to recent abuses and questionable practices foundation managers are under pressure to properly manage the foundation. Donor Advised Funds are a very attractive alternative since they avoid the administrative responsibilities and provide many other benefits. Converting private foundations into Donor Advised Funds is a growing trend in the nonprofit arena.

The following table provides a side-by-side comparison of the features of a private foundation and a WaterStone Donor Advised Fund.

<table width="98%" border="1" cellspacing="0" cellpadding="0" bordercolor="#0000CC"  bgcolor="#eeeeee" align="center"><tr style="background: #cccccc;"><td style="font-weight: bold;">Features</td><td style="font-weight: bold;">Private Foundation Requirements</td><td style="font-weight: bold;">Donor Advised Fund Requirements</td></tr><tr><td style="font-weight: bold;">Description</td><td>Charitable organization created, funded and controlled by a single family</td><td>Fund created by a donor through a gift to WaterStone</td></tr><tr style="background: white;"><td style="font-weight: bold;">Origination & creation</td><td>Legal & accounting required</td><td>No legal or accounting required</td></tr><tr style="background: white;"><td style="font-weight: bold;"></td><td>Time consuming & expensive</td><td>Quick and simple</td></tr><tr style="background: white;"><td style="font-weight: bold;"></td><td>$1-2 million for efficiency of creation</td><td>$1,000 minimum to open fund</td></tr><tr><td style="font-weight: bold;">Incorporation & legal status</td><td>Must create corporation or trust and apply for tax exemption</td><td>Covered by WaterStone's 501c3 tax exempt status. Complete application.</td></tr><tr style="background: white;"><td style="font-weight: bold;">Start up cost</td><td>Set up - $15,000 - $20,000</td><td>No set up charges</td></tr><tr><td style="font-weight: bold;">Estimates</td><td>On-going expenses</td><td>Cost effective</td></tr><tr style="background: white;"><td style="font-weight: bold;">Tax deductibility</td><td>Cash – 30% Adjusted Gross Income (AGI) </td><td>Cash – 50% Adjusted Gross Income (AGI)</td></tr><tr style="background: white;"><td style="font-weight: bold;"></td><td>Appreciated publicly held securities – full market value up to 20% AGI</td><td>Appreciated publicly held securities – full market value up to 30% AGI</td></tr><tr style="background: white;"><td style="font-weight: bold;"></td><td>Closely held stock & real estate - limited to cost basis up to 20% AGI</td><td>Closely held stock & real estate - full market value up to 30% AGI</td></tr><tr><td style="font-weight: bold;">Control</td><td>Maximum donor control plus compliance responsibility</td><td>Maximum donor involvement</td></tr><tr style="background: white;"><td style="font-weight: bold;">Excise taxes</td><td>2% Excise tax requirements</td><td>Tax exempt</td></tr><tr><td style="font-weight: bold;">Penalty taxes</td><td>May be imposed for not making minimum distributions, for excess business holdings or for unacceptable investments</td><td>None</td></tr><tr style="background: white;"><td style="font-weight: bold;">Distribution</td><td>5% annual required</td><td>Open, no required payout</td></tr><tr><td style="font-weight: bold;">Investments</td><td>Limitations on closely held stock</td><td>Full flexibility</td></tr><tr style="background: white;"><td style="font-weight: bold;">Administration</td><td>Accounting, auditing, investing, tax return</td><td>In house, so off donor’s plate<br>State & federal tax reports</td></tr><tr><td style="font-weight: bold;">Fiduciary responsibility</td><td>Board has complete responsibility</td><td>WaterStone has complete responsibility</td></tr><tr style="background: white;"><td style="font-weight: bold;">Annual IRS reporting</td><td>Form 990 PF to be filed</td><td>No requirements</td></tr><tr><td style="font-weight: bold;">Continuity</td><td>Limited by family interest</td><td>Unlimited</td></tr><tr style="background: white;"><td style="font-weight: bold;">Privacy</td><td>Public inspection, disclosure & records</td><td>Private records & can give anonymously</td></tr><tr><td style="font-weight: bold;">Grant administration</td><td>Trustees perform, contract or hire staff to handle</td><td>Donor’s recommendation, in-house due diligence & no restrictions on who receives funds</td></tr><tr style="background: white;"><td style="font-weight: bold;">Liability & insurance</td><td>Director's & officer's liability, employee bonding & office insurance</td><td>Automatically covered by WaterStone's liability and office insurance </td></tr><tr><td style="font-weight: bold;">Scholarships</td><td>Requires IRS approval & reporting</td><td>No additional requirements</td></tr></table>