In Canada, foundations play a crucial role in addressing social issues, supporting communities, and driving positive change. When it comes to establishing a foundation, individuals, families, and organizations have two primary options: private foundations or donor advised funds at public foundations (DAF). While both types share a common goal of philanthropy, they differ significantly in various aspects. In this interview, with David Ohayon, Philanthropic Advisor at the Jewish Community Foundation of Montreal (JCF), we delve into the distinctions between the two.

Interviewer: David are the primary differences between establishing a private foundation and opening a donor advised fund (DAF) at a public foundation in Canada? 

David: Private foundations and DAFs at public foundations both serve the purpose of philanthropy but differ significantly in several key aspects. A private foundation is typically established and funded by a single donor, family, or corporation. It requires legal incorporation, bylaws drafting, and obtaining charitable status from the Canada Revenue Agency (CRA). This process can be lengthy and costly, involving complex administrative tasks. In contrast, opening a DAF at a public foundation is relatively quick, often taking as little as 24 hours, with minimal start-up costs and in the case of the JCF, there are no start-up costs.

Interviewer: Could you elaborate on the minimum contribution requirements for these two types of philanthropic structures? 

David: Certainly. Private foundations usually demand larger initial contributions, which can range from hundreds of thousands to millions of dollars. This makes them more suitable for individuals or families with substantial means. On the other hand, DAFs at public foundations often have lower minimum contribution thresholds, sometimes as low as $5,000, making them accessible to a broader range of donors.

Interviewer: What about ongoing administrative costs associated with these structures? 

David: Private foundations generally have higher ongoing administrative costs, including salaries for staff, legal and accounting fees, and operational expenses. This is because they maintain independent operations. DAFs benefit from economies of scale as administrative tasks and investment management are handled by the hosting public foundation, resulting in lower ongoing costs for fundholders. At the JCF, the average administrative fees are 0.2% per annum (20 basis points) and zero fees on cash balances.

Interviewer: How does governance differ between private foundations and DAFs at public foundations? 

David: Private foundations have their own governing boards responsible for setting policies, approving grants, and overseeing operations. In contrast, DAFs operate within the governance framework of the hosting foundation, which often includes a diverse board of directors with representation from stakeholders, including donors and experts in accounting, law, investments, and the charitable sector. This diverse expertise provides fundholders with deep professional guidance and support.

Interviewer: One aspect often of concern is privacy and transparency. Could you shed light on this? 

David: Despite their name, private foundations are not private and completely open to public scrutiny. CRA requires that all Canadian registered charities complete a Form T3010 – Registered Charity Information Return on an annual basis. Most information contained in the T3010 and its schedules (which includes detailed financial information including revenue, expenses, assets and liabilities of the charity, information on the directors/trustees and information on all grants made by the private foundation, etc.) is publicly available on CRA’s web site. In contrast, individual DAFs at public foundations enjoy greater privacy as their information is reported in aggregate, preserving the anonymity of fundholders.

Interviewer: How do the grant-making processes differ between private foundations and DAFs? 

David: Private foundations have autonomy in grant-making decisions, allowing founders or boards to select recipients based on their criteria. DAFs involve a collaborative process, with fundholders providing grant recommendations to the foundation’s grant-making committee or board for approval.

Interviewer: How do the objects and purpose of private foundations contrast with those of DAFs at public foundations?

David: Objects and purposes play a significant role in shaping the focus and impact of philanthropic efforts. Private foundations typically have specific objects and purposes outlined in their governing documents, reflecting the founder’s charitable mission and vision. These objects guide grant-making priorities and strategic initiatives supported by the foundation. They tend to be specific, which can limit grants to charities that align closely with these defined purposes. Public foundations such as the JCF usually have broader charitable objects and purposes. This allows DAF fundholders to support a wider range of causes and initiatives that fall within the overarching mission of the public foundation. Unlike private foundations, DAFs provide flexibility in grant-making by leveraging the diverse charitable scope established by its hosting foundation. Furthermore, at the JCF, we have developed an expertise in supporting organisations that are not Canadian registered charities.

Interviewer: When it comes to investment management, what are the key differences between private foundations and DAFs?

David: Investment management is a critical aspect of philanthropic planning since it can influence grant-making strategies and the overall sustainability of charitable activities. Private foundations often manage their investment portfolios independently or with the assistance of investment advisors. They aim to generate returns to support charitable activities over the long term. In contrast, DAFs benefit from the expertise of professional fund managers, providing a level of reassurance and expertise that may appeal to donors seeking a hands-off approach to investment. This ensures prudent stewardship of fund assets and alignment with fundholders’ objectives and risk tolerance.

Interviewer: How does legacy manifest itself differently in private foundations compared to DAFs at public foundations?

David: In the case of private foundations, there exists a risk that its board of directors or trustees decide not only to change the foundation’s name but it’s mission through changing its objects and purposes thereby no longer supporting the causes of its original founder. At the JCF, fundholders can have peace of mind that their instructions and wishes will be followed to the letter including the name of their fund thereby ensuring their legacy. This can take many forms, from having appointed Successor Chair(s) of the Advisory Committee or by creating a letter of wishes (agreement) detailing how the fund should be allocated either through creating endowments or granting amounts outright and/or creating separate funds for their spouses and children.

Interviewer: Lastly, could you touch on the tax implications associated with these philanthropic structures? 

David: Both private foundations and DAFs offer tax advantages, but the specifics differ. Private foundations have a mandatory annual disbursement quota of at least 5% of assets, whereas DAFs do not have such requirements at the individual fund level. For example, the JCF currently distributes 10% of its overall assets on an annual basis, giving flexibility to fundholders on how much they choose to distribute individually, providing them with flexibility in their giving strategies.

Interviewer: Thank you, David, for providing such valuable insights into navigating philanthropy in Canada. Any final thoughts for our readers considering establishing a foundation or DAF? 

David: It’s essential for donors to assess their philanthropic goals, financial capacity, and administrative preferences before deciding on a structure. Private foundations offer control and legacy-building opportunities but require significant resources and ongoing commitments. DAFs provide flexibility, cost-effectiveness, and professional support for donors looking to engage in strategic philanthropy without the administrative burden. Ultimately, the choice should align with one’s charitable objectives and values.

To conclude I want to reiterate that the JCF’s mission is to inspire, enable and optimize philanthropy to meet the ideals, aspirations and giving needs of the Montreal Jewish Community and society at large. So, we view all philanthropy as a win!

To learn more about Donor Advised Funds, please contact a Philanthropic Advisor at 514.345.6414 or [email protected] 

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