Dear FFTC Team,

My beloved grandmother passed away recently and left me a sizable inheritance. She was always very charitable, and I want to honor her memory by continuing that legacy. I’m considering starting a private foundation but am exploring my options. Do you have any advice? – Paying it Forward

Dear Forward,

We are very sorry for your loss. Your grandmother sounds like she made a big impact on your life, and it is wonderful that you want to continue honoring her legacy in your community.

You are wise to carefully consider which philanthropic vehicle will best meet your objectives. For individuals with significant assets, the choice is often between establishing a private foundation or opening a donor advised fund, which is a separately identified fund or account maintained and operated by a public charity.

Both donor advised funds and private foundations enable donors to give strategically over time, while involving family members and creating a lasting legacy. However, unlike a private foundation, establishing a donor advised fund is a straightforward process requiring only a single fund agreement and an initial charitable contribution. You can even name the fund after your grandmother and recommend grants to the qualified public charities of your choice in her honor.

You may find it useful to read Selecting the Right Philanthropic Vehicle: Private Foundations vs. Donor Advised Funds in the North Carolina Bar Association’s newsletter. Some things to consider:

1. Opening a donor advised fund is easier than creating a private foundation, and ongoing administration is typically much less expensive.
2. Donor advised funds are not subject to an excise tax on investment income and are not required to file tax returns or perform annual audits, reducing expenses so you can give more to charity.
3. Contributions to donor advised funds offer more advantageous tax deductions than private foundations because they benefit from the public charity status of the sponsoring organization.
4. There is no annual distribution requirement for donor advised funds, so you can be strategic in your grantmaking.
5. A donor advised fund does not require board meetings or have staff to manage, but the advisors can be a group of individuals serving in a board-like capacity.

Speak with your financial advisor or tax attorney to determine which approach would work best for you. If a donor advised fund is appropriate, consider working with a community foundation, such as Foundation For The Carolinas, so you can benefit from local experts with knowledge of community issues while also becoming part of a charitable peer network.