Strategic Giving: The Role of Donor-Advised Funds and Private Foundations

Alexander Fedynsky, J.D.
Partner, Family Wealth Advisor

Whether you’re motivated by a desire to make a real difference in your community or to involve the next generation, giving thoughtfully can boost both the financial and personal rewards of philanthropy. Donor-advised funds (DAFs) and private foundations are two powerful tools for structured, tax-efficient giving, each with its own advantages. Understanding how they differ, and how they can work together, can help transform your family’s charitable vision into meaningful change.

At Aaron Wealth, our approach focuses on integrating tax-efficient strategies into your wealth transfer and charitable planning, ensuring that giving and portfolio transitions are considered year-round, not just year-end. We provide guidance on using charitable strategies to assist with portfolio transitions, helping you manage your investments while supporting the causes you care about.

Looking ahead to 2026, rising federal deficits and reductions in charitable deduction benefits may impact high-net-worth individuals, making timely action increasingly important. We recommend evaluating your strategies sooner rather than later to maximize tax efficiency and charitable impact.

Donor-Advised Funds: Flexible, Immediate, and Simple

A donor-advised fund functions like a charitable investment account. You make an irrevocable contribution of  appreciated securities which avoids capital gains taxes (cash is always an option to donate as well), receive an immediate tax deduction and recommend grants to qualified charities over time.

Why Ultra High Net Worth (UHNW) families choose DAFs:

• Speed and simplicity. Setting up a DAF is quick and straightforward, which can be perfect for year-end giving or reducing your tax burden after major liquidity events such as selling a business, receiving an inheritance, or benefiting from strong market returns.
• Tax efficiency. Gifts of long-term appreciated assets may allow deductions of up to 30% of your Adjusted Gross Income (AGI) with the added benefit of eliminating capital gains taxes on the donated securities.  Cash donations can qualify for an income tax deduction of up to 60% of your AGI.
• Reset cost basis. For concentrated positions donating appreciated stock through a DAF can reduce future capital gains while maintaining desired exposure.  For example, if you have $1MM in liquidity and $1MM in NVIDIA stock, you can donate the appreciated NVIDIA shares to a donor-advised fund (DAF) and then use the cash to buy back NVIDIA, reducing future capital gains while maintaining exposure to the stock.  Not only do you satisfy your charitable goals, receive a tax deduction, but you also avoid capital gains taxes and reset your cost basis in the stock.
• Grow your giving. Contributions to a DAF can grow tax-free, giving you flexibility to pace grants strategically, take advantage of the 5-year carry-forward period for unused deductions, and maximize philanthropic impact over time.
• Anonymity and discretion. Unlike private foundations, DAF grants can be made anonymously, offering privacy when it matters most.

Private Foundations: Control, Legacy, and Influence

A private foundation is your family’s own charitable vehicle: a separate legal entity you can create, manage, and fund together. Loved ones can serve on the foundation’s board, helping guide grants and giving in ways that reflect your shared values and goals.

Why UHNW families establish private foundations:

• Multigenerational engagement. A foundation creates a formal structure for family governance—inviting children and grandchildren to help define mission, values, and strategy while gaining hands-on experience in philanthropy.
• Broader scope. Foundations can make program-related investments, fund scholarships, award grants directly to individuals or charities, or run their own charitable initiatives.
• Visibility and legacy. A foundation strengthens your family’s public identity and builds a legacy of impact that endures across generations.
• Tax advantages. Contributions may reduce current-year taxable income, avoid capital gains on donated appreciated securities, and help lessen potential estate tax exposure for future heirs.

Tip: Private foundations require ongoing administration, compliance with annual 5% payout rules, and detailed IRS reporting.

DAF vs. Private Foundation: Quick Visual Guide

A DAF is perfect for more nimble giving and tax-efficient strategies, while a foundation is ideal for families who want a multigenerational, structured approach.

How DAFs & Private Foundations Can Work Together

Many UHNW families find that using both a donor-advised fund and a private foundation offers the best of both worlds: a DAF for flexibility and a foundation for enduring legacy.

• During a liquidity event: Open a DAF to secure a large charitable deduction in a high-income year, while shaping your family’s long-term strategy through the foundation.
• For collaborative giving: A DAF can fund newer or experimental causes, while the foundation focuses on core, mission-driven initiatives.
• To prepare the next generation: Younger family members can manage DAF grants before joining the foundation board.

This dual approach provides nimbleness and structure, ensuring charitable capital is deployed strategically and sustainably.

Additional Factors to Consider

Timing is essential. Start early in the year: a DAF can secure immediate tax benefits while giving families time to design long-term strategies.

Changes to charitable deductions. Beginning in January 2026, the One Big Beautiful Bill Act (OBBBA) introduces a 0.5% floor on deductible gifts and a 35% cap for top-income brackets.

Where and what you give matters. Donations to a private foundation are deductible up to 30% of AGI (vs. 60% for public charities), while appreciated assets are capped at 20% of AGI (vs. 30% for public charities).

Q&A: DAFs and Private Foundations

Q: How do I know whether a donor-advised fund or private foundation is right for me?
A: For simplicity, flexibility, and immediate tax benefits, a DAF works well. For control, family involvement, and long-term legacy, a foundation is ideal. Many families use both.

Q: Can I contribute non-cash assets to either structure?
A: Yes. Both can accept appreciated securities, and many DAF sponsors and foundations handle complex assets—private business interests or real estate—with proper valuation and due diligence.

Q: How can DAFs help manage concentrated stock positions?
A: Donating appreciated securities to a DAF satisfies charitable goals, resets cost basis, and reduces future capital gains exposure—while maintaining exposure to preferred investments.

Q: At what point should we consider a private foundation over a DAF?
A: Unless the intended gift is substantial—typically $5M to $10M or more—a private foundation may not make sense.

Q: How can I coordinate charitable giving with estate planning?
A: Consider naming a DAF as the beneficiary of a charitable remainder trust. This approach keeps giving flexibility while providing meaningful tax and estate planning advantages.

Final Thoughts

At its best, strategic philanthropy weaves financial success and tax efficiency into enduring impact. Whether through a donor-advised fund, a foundation, or both, the key is clarity—about your family’s values, goals, and the change you want to see.

Let’s talk about creating a customized giving strategy for your family.

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