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Naomie Macena:

There are many ways to make a difference in the world. But if you can contribute significant funds towards advancing causes or communities, you'll want to know about two common structures that can help you give more effectively, donor-advised funds and private foundations. Many of us have heard of these. But what are they exactly, and how can they help you increase your philanthropic impact?

First, let's talk about Donor-Advised Funds. They're also known as DAFs and are extremely popular because it takes far less money to open a DAF than to set up a foundation. DAF accounts are easy to establish and require no administrative work of you. The tax benefits of a DAF can be significant and immediate.

As soon as you put funds into your account, you're eligible to take a charitable deduction for that amount. You can begin recommending grants right away, but you don't have to start giving the funds immediately. You can take as much time as you need to select potential recipients. In fact, while you are deciding on your grants, your donated funds are being invested consistent with your charitable goals.

That means these funds may grow, and you may be able to give more to your causes later. There's one thing about DAFs that is important to know. The DAF has legal control over investments and grants. It must ensure that any potential recipient recommended for a grant is qualified to receive your charitable dollars.

There's another reason why donors often find DAFs so attractive. DAFs give them the option to remain anonymous and keep their privacy. In contrast, many of the internal workings of a private foundation must, by law, be made public, which brings us to our second type of giving entity people often use, the private foundation. What exactly is a private foundation?

A private foundation is a type of charitable organization that is usually funded and governed by an individual or a single family. Private foundations are more work, but they give families more control. On the downside, foundations can be costly to establish and manage. There are many laws governing how they must be operated and how their funds must be invested.

There are public reporting requirements. And very importantly, a private foundation is required to pay out 5% annually of its total assets. Yet there are very compelling reasons why donors choose foundations. Private foundations give you, as a philanthropist, more control so you can have a greater impact.

Private foundations also can give a family the opportunity to work for a common cause over the long term, sometimes for many generations. Usually, the person or the family will define the foundation's mission. It could be dedicated to saving the environment, supporting the arts, investing in education, fighting poverty, something the family feels passionate about. This is a public statement about what your foundation hopes to achieve.

It helps nonprofits aligned with your mission know they can come to you requesting financial support. So which type of giving vehicle is right for you and your family, a donor-advised fund or a private foundation? Well, very often families with enough assets to donate will choose to set up both a private foundation and a DAF. Doing so gives them great flexibility.

Here's a quick example of what I mean. Say that your family decides its foundation will be focused on early education for children across the United States. But some of the members of your family have other causes they wish to support. One is interested in giving to his church.

Another wants to support medical research. The foundation can remain dedicated to education, while funds from the DAF can be directed toward other charitable interests.

So where should you and your family start? Start by figuring out what your philanthropic goals are.

Decide how public you want your charitable giving to be. Next, be honest with yourself about how much time, effort, and treasure you and your family members can dedicate to these philanthropic goals, now and in the future. And always be careful to take into account how your financial commitments will fit into your overall wealth plan and goals. An informed advisor can help you and your family answer these important questions.

And if you're a Bessemer client, your client advisor is happy to help.

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