Formalizing philanthropy

Foundations & Endowments

Winston Churchill is widely quoted as saying “We make a living by what we get, but we make a life by what we give.” Leaving a legacy through philanthropy is an important goal for many individuals, families, and corporations. The philanthropic motivations may be myriad—from teaching the next generation about family values, to tax deductions or the desire to support a cause or organization that has special meaning to the donor. 

For those who are very charitably inclined, there often comes a time to consider formalizing philanthropy through a major gift to a public charity, establishing a private foundation, opening a donor advised fund, or selecting another charitable planned giving vehicle. Before deciding which option is best, however, a donor will need to consider several questions:

  • What tax deduction limits against AGI are needed?
  • How much time do I have to commit to the administrative responsibilities?
  • Do I want/need to hire people to help pursue my charitable mission?
  • Do I anticipate making grants to individuals, such as in a scholarship fund?
  • Do I want to maintain control over investment management?
  • How important is anonymity in my grantmaking?
  • What’s the long-term legacy I wish to leave?
  • How will I involve the next generation?

Direct gifts to a public charity

If a donor is certain about the recipient organization and how the donation should be used, giving a gift directly to a public charity may be the best option. The donor receives the tax deduction in the year in which the gift was made (for the 2021 tax year up to 100% of adjusted gross income for cash gifts and 30% of adjusted gross income for gifts of stock or real estate). Gifts can be made anonymously. But once the gift is made, the donor relinquishes control of the funds to the charity.

Private foundations

Private foundations offer the most control and flexibility for donors. Donors who establish private foundations maintain control of the investments of the endowment, distributions of grants, and administrative decisions. Foundations are established as independent entities and must apply for and maintain tax-exempt status. Private foundations can give to public charities, operating foundations, individuals, international organizations, and other private foundations.Disclosure 1 Donors receive a tax deduction in the year in which the gift is made.Disclosure 1

Donor advised funds

Donors who don’t know what specific charities they want to give to, or aren’t ready to make one large gift to a single organization, may choose to open a donor advised fund (DAF). These are funds which are established at a sponsoring public charity in the name of the donor. The donor receives the tax deduction (and relinquishes control of the gift) in the year in which the gift is made. However, the donor then can make subsequent recommendations for grant distributions to qualified public charities.

The chart below provides additional information for donors seeking to formalize their philanthropy with a private foundation or donor advised fund.

Private Foundation and Donor Advised Fund Comparison Chart
Private Foundation Donor Advised Fund (DAF)
Tax deductible limits for gifts of cash 30% of adjusted gross income (AGI) 50% of adjusted gross income (AGI) 60% of adjusted gross income (AGI)
Tax deduction limits for gifts of stock or real property 20% of adjusted gross income (AGI) 30% of adjusted gross income (AGI)
Donor Control Maintain full control of the investments, grant distributions and governance Some control of the investments within a defined pool of options; permitted to make recommendations for grant distributions, but final selection is controlled by sponsoring organization; no governance control
Flexibility Permitted to invest in program-related investments, and to grant to individuals, international organizations, public charities, private foundations, non-exempt organizations; may grant to or covert to a Donor Advised Fund Typically only grants to public charities are permitted; DAFs cannot grant to or convert to a private foundation.
Start-up costs Start-up costs Moderate legal and accounting fees and modest filing fees None
Ongoing/Annual costs Investment Advisory fees, administrative fees, tax service fees Modest administrative and investment fees
Investment Management Board exercises complete control over investment strategies, vehicles, policies and managers Donor may be able to provide input on how the DAF is invested within a pool of investment option or managers
Excise Taxes / Investment Income Tax Must pay excise tax on net investment income None
Mandatory Distributions (5% rule) Must distribute 5% of average net assets annually, regardless of portfolio returns None
Anonymity / Privacy No – PFs file tax Form 990PFs annually which lists all grants made and the names of all members of the board Yes – DAFs give the donor the option to be recognized for the grant or not
Governance & Succession Appoints a board, defines a mission statement and establishes a succession plan; responsible for administration of foundation Yes – DAFs give the donor the option to be recognized for the grant or not
Perpetuity Perpetuity Yes, or can be established with a termination clause after a specified period of time Maybe, after a period if funds are not spent, assets often revert back to a charitable pool managed by the sponsoring organizationDisclosure 2
Acceptable Contributed Assets Cash, publicly traded securities, mutual fund shares, publicly traded bonds, IRS assets, real estate, jewelry, art, etc Cash, publicly traded securities, mutual fund shares
Hire Staff / Compensate Board Members Yes No

About Truist’s Foundations and Endowments Specialty Practice

Truist has more than a century of experience working with not-for-profit organizations. Fiduciary stewardship is the heart of our culture. We’re not just a provider, but an invested partner—sharing responsibility for prudent management of not-for-profit assets. Our client commitment, not-for-profit experience, and fiduciary culture are significant advantages for our clients and set us apart. The Foundations and Endowments Specialty Practice works exclusively with not-for- profit organizations. Our institutional teams include professionals with extensive not-for-profit expertise. These professionals are actively engaged in the not-for profit community and are able to share best practices that are meaningful to their clients. Team members offer guidance and advice tailored to the various subsets of the not-for-profit community, including trade associations and membership organizations. Our Practice delivers comprehensive investment advisory, administration, planned giving, custody, trust and fiduciary services to trade associations, educational institutions, foundations, endowments and other not-for profit clients across the country.

Interested in having a deeper conversation about formalized philanthropy?

Contact your Truist relationship manager or investment advisor or call us at 866-223-1499.

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    Disclosure 1  Pre-approval from the IRS is required to make grants to individuals.

    Disclosure 2 Policies differ by sponsoring organization. Donors should ask for particular information for any DAF they are considering.

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