During a recent discussion of family charitable giving at the Florida Tax Institute, an attorney offered “12 reasons” families should not give through a family foundation. He argued that family intentions are better served by donor advised funds (DAF) than they are family foundations.

I countered with an important reason families should give through foundations: philanthropy is the glue that brings a family together via the opportunity to discuss giving as a family.

Donor advised funds (DAF) have merit. They allow donors to contribute a variety of assets, whether cash, stocks or other transferable assets, into the structure, which can later be distributed to charitable organisations, such as community foundations or local charities. They streamline the giving process and, when done as intended by the donor, steer money to desired charities, by name or category. While money given to a DAF is subject to management fees, the assets are managed, diversified, and ultimately, they must all benefit non-profits.

A family foundation requires a little more effort from the donor. The family must first create their own non-profit, which can cost thousands of dollars in legal fees (or, you can set it up as I did with the IRS Form 1023-EZ, which is for smaller foundations and is a streamlined process under Section 501(c)(3) of the Internal Revenue Code). Then, the family makes contributions and charitable distributions.

The foundation also must file an annual return with the IRS called a Form-990, reporting the foundation’s activity for the previous tax year. This is not a straightforward document and the cost of engaging a CPA can add hundreds of dollars to the annual cost of managing the foundation.

Costs in money and time aside, the intangible benefit of a family foundation is the glue I mentioned earlier.  This cannot be overstated. Giving by a family, whether through a DAF or a foundation, provides an opportunity to discuss intentions. The patriarch and matriarch may have one goal, whilst adult children may have another. Even younger generations, still in grade school or college, may have causes they would like to support.

There is the added element of reviewing the portfolio and decisions to preserve the wealth for future giving, unlike a DAF which is managed by a third party and where the family has no say.

Done well, a family foundation can be a “kitchen table” around which families share and weigh their individual intentions and the family’s future.

It may even be a chance for elders to give under-age children a budgeted sum to donate – after the children provide a well thought out explanation as to why they chose their particular organisation. But don’t stop at the explanation; ensure that the children do a site visit and roll their short sleeves up with the potential beneficiaries before they make any donation.  It truly can be a learning experience on the power of giving – and the family’s obligation to help the community.

In fact, intentions can be shared and codified from the outset by setting up a mission statement for the family, and then implementing it in the family foundation. This goes beyond a “meaningful conversation.” It allows family members to gain a deeper understanding of what drives one another. It’s discourse you generally will not find by cutting a check to a DAF.

Another important consideration to clarify to donors with regards to a DAF, is that as a donor, you may tell the DAF you want to support homelessness, healthcare, social services or the environment. However, the charity has to be from a pre-approved list by the DAF, which is not obligated to follow your wishes should they not agree on the specific charity. They may indeed follow your wishes; however, the fine print says the ultimate decision regarding distributions falls to the DAF and its board. If you have a change of heart, you cannot get your donation back from the DAF!

Whether you choose a family foundation or a DAF, the options and steps may be hard to evaluate alone. If your family is considering how to give, let’s talk. I’ve set these up for myself, other family members, and I’ve worked with families to establish foundations that create solid ground for future generational giving. All you need is one reason to give. Let’s get you on that path.