Charitable Giving Vehicles: Comparing DAFs, CLTs, and Private Foundations

If you're thinking about making charity a bigger part of your financial plan, you've probably realized there are more options than just writing checks. The good news? Strategic philanthropy can multiply your impact while creating real tax advantages. The tricky part? Figuring out which vehicle actually makes sense for your situation.

Let's walk through three popular charitable giving vehicles - Donor Advised Funds (DAFs), Charitable Lead Trusts (CLTs), and Private Foundations - so you can make an informed decision about what fits your family's goals.

The Simple Choice: Donor Advised Funds (DAFs)

Think of a DAF as a charitable giving account. You contribute cash or assets, get an immediate tax deduction, and then recommend grants to your favorite charities over time. It's become the fastest-growing charitable vehicle in America for good reason - it's straightforward.

Who it's for: Anyone looking to simplify their giving, from first-time donors to families wanting to involve multiple generations in philanthropy.

The tax benefits:

• Cash contributions are deductible up to 60% of your adjusted gross income (AGI)
• Gifts of appreciated securities (like stocks you've held over a year) are deductible up to 30% of AGI
• Anything above those limits can be carried forward for five years
• You avoid capital gains tax on appreciated assets

What makes it easy: Major providers like Fidelity have no minimum contributions, though some community foundations may require $10,000-$25,000 to open an account. Fees are typically around 0.6% annually, and you can recommend grants online whenever you're ready.

The flexibility factor: You can contribute any amount at any time. Many families use DAFs for "bunching" donations - giving several years' worth of charitable contributions in one high-income year to maximize tax benefits, then recommending grants to charities over the following years.

Family succession: You can name successor advisors, allowing your children or grandchildren to continue recommending grants after you're gone. It's a simple way to pass on your charitable values.

The Wealth Transfer Play: Charitable Lead Trusts (CLTs)

A CLT flips traditional charitable giving on its head. Instead of getting income and leaving the remainder to charity (like a Charitable Remainder Trust), a CLT pays income to charity for a set period, then passes what's left to your heirs.

Who it's for: Families with significant wealth who want to support charity now while ultimately transferring assets to children or grandchildren at a reduced tax cost.

How it works: You fund the trust with cash or assets (often appreciating assets like stock or real estate). The trust pays a fixed amount or percentage to charity each year for the term you set - maybe 10, 15, or 20 years. When the term ends, whatever's left goes to your family members.

The wealth transfer advantage: Here's where it gets interesting: the IRS calculates the value of the gift to your heirs at the start, based on what they expect will be left after the charitable payments. If your trust assets grow faster than the IRS assumed, the extra growth passes to your heirs gift-tax-free.

This makes CLTs particularly powerful for assets you expect to appreciate significantly - a growing business, real estate in a developing area, or a concentrated stock position.

The tax picture: You get a charitable deduction upfront based on the present value of the payments that will go to charity. The exact amount depends on the trust term, payout rate, and IRS interest rate assumptions at the time you create it.

The complexity cost: CLTs require professional setup and ongoing administration. You'll need an attorney, likely a CPA, and possibly a trustee. Costs typically run several thousand dollars to establish and ongoing fees to maintain.

When it makes sense: If you're looking at a taxable estate that exceeds the $15 million per person exemption (starting in 2026), or you're holding highly appreciated assets you want to eventually pass to kids, a CLT can be a powerful planning tool. Just know you're committing those assets for the long haul.

The Control Option: Private Foundations

If you want maximum control over your charitable giving and you're thinking multi-generational legacy, a private foundation might be your answer.

Who it's for: High-net-worth families (typically those who can commit $5-10 million or more) who want complete control over investments, grantmaking, and operations.

What sets it apart: Unlike a DAF where you recommend grants, with a foundation, you're in charge. You decide everything: which charities receive grants, how the foundation's assets are invested, who serves on the board, what your grantmaking priorities are.

The tax considerations:

• Cash contributions to a private foundation are deductible up to 30% of AGI
• Contributions of appreciated securities are deductible up to 20% of AGI - less generous than DAFs
• These limits can be carried forward for five years
• You must distribute at least 5% of your foundation's assets annually
• The foundation pays a 1.39% excise tax on net investment income

The transparency trade-off: Private foundations are public record. Your tax returns (Form 990-PF) are available for anyone to review, showing your assets, grants, and salaries. If privacy is important to you, that's worth considering.

The cost of control: Establishing a foundation requires significant legal work. Ongoing costs include accounting, legal compliance, tax preparation, and administrative expenses. Many families hire staff or professional administrators. You're looking at tens of thousands in annual operating costs at minimum.

The perpetual legacy: A private foundation can exist in perpetuity, continuing your family's charitable work for generations. You can employ family members, involve children in board service, and create a formal structure for your philanthropic vision.

How to Choose

The decision really comes down to three factors: control, complexity, and cost.

Start with a DAF if:

• You're just getting started with strategic giving
• You want simplicity and flexibility
• You're not sure yet which charities you want to support long-term
• You want to test out involving your family in charitable decisions
• You're giving less than $5 million

Consider a CLT if:

• Wealth transfer to the next generation is a primary goal
• You have highly appreciating assets
• You're comfortable with complexity and professional fees
• You want to support charity while ultimately benefiting your heirs
• You're planning for estate tax reduction

Think about a Private Foundation if:

• You can commit $5-10 million or more
• Control over investments and grantmaking is important to you
• You want to create a formal family legacy
• You're willing to handle the compliance and public disclosure requirements
• You want to employ family members or create an enduring institution

Don't Forget the Integration

Whatever you choose, make sure it fits with the rest of your plan. Talk with your wealth advisor about how charitable giving coordinates with your estate plan, retirement account distributions, and Generation-Skipping Tax (GST) exemption. If you're passing a business to the next generation, a CLT might actually help reduce the tax cost of that transfer.

The 2025 tax law made the $15 million estate tax exemption permanent, which changes the equation for many families. You might have more flexibility than you thought.

Choosing the right charitable giving vehicle requires understanding both the technical details and your personal goals. If you'd like to explore which approach makes sense for your family's philanthropic vision, reach out to your Entrust Wealth Partners advisor or call us at (860) 838-3730 to start the conversation.

The information provided is for educational purposes only and should not be considered tax or legal advice. Please consult with your tax advisor and attorney to determine the best charitable giving strategy for your situation.