Donor-Advised Funds vs. Private Foundations

Financial and organizational support of civil society at the stage of formation plays a decisive role in the success story. In this article, we will analyze the peculiarities of the activity of private and donor-advised funds.

The purpose of a private fund

A private fund is a fund created at the expense of one person or a family to carry out certain charitable programs. In other words, the peculiarity of a private foundation is that, unlike ordinary charitable organizations or operational charitable foundations, it does not specifically raise money for its activities from the public, business, or other private philanthropists. All activities of the private fund are covered exclusively by the founders. Exceptions are cases where other philanthropists take the initiative and can transfer funds to a private fund to support a successful program. As a rule, the founders of private funds are wealthy people and their families. An entrepreneur allocates a significant amount of his capital or income to the fund and, most often, gives the organization its name. Several generations of the family can take part in the work of the family fund: parents, children, grandchildren. If the fund is established during the life of the donor, the founder himself participates in its management. In the case of the establishment of the fund following the will, the management is transferred to a special board of directors, which makes all major decisions.

How are charitable programs of private foundations implemented?

Most private foundations in the world do not run charitable programs on their own. Private foundations allocate grants – earmarked funds to other public, charitable organizations, schools, universities, hospitals – for charitable projects. In addition to grants, many foundations provide scholarships or establish annual awards. Once again, we note an important point – the funds for all these programs come from the capital of the fund or directly from the founder. Private funds do not fundraise, ie do not attract outside funds for their projects. In continental Europe, particularly in France or Germany, private foundations often carry out their projects, but they also finance them.

How do the donor-advised funds work?

As practice shows, donor-advised funds can mobilize in difficult times and really help society or those who need help, even in quiet times. Today, charitable foundations can support the medical industry and help our people fight the disease. Many companies and individuals are willing to provide funds, but they want their funds to be used for their intended purpose. In addition, the procedure for assisting medical institutions through their budget accounts has a long period and various bureaucratic procedures. Charitable foundations can mediate and expedite the provision of care, both to medical institutions themselves and to individuals who may need help.

The donor-advised funds have their charter, based on which they are registered and operate. In each charter the charitable fund defines the purposes of creation and spheres of the activity, and also the circle of beneficiaries can be defined and detailed. The types of charitable activities to assist both individuals and legal entities can be:

  • gratuitous transfer of funds and other property to the ownership of the beneficiaries;
  • free provision of services and performance of works for the benefit of beneficiaries.

Each charitable foundation should check whether it has the above-mentioned charitable activities in its charter.