A private foundation is a separate legal entity created to make charitable grants, typically funded by one family. It has its own board, files its own annual return, and must distribute roughly five percent of assets each year. It offers more control than a donor-advised fund and costs considerably more to operate.
Foundations make sense when control and visibility matter: the family wants a named entity, a board that includes the next generation, the ability to make grants to individuals or non-public charities under the relevant rules, or a permanent institution that outlives them.
The costs are real. Annual filings, an excise tax on net investment income, self-dealing rules that restrict transactions between the foundation and family members, and the administrative work of running a board all add up. Below a certain asset level the overhead outweighs the benefit.
Many families run both — a foundation for the visible, structural giving and a donor-advised fund for grants they would rather make quietly or quickly.
This definition is provided for educational purposes. It is general information, not investment, tax, or legal advice, and it does not account for any individual circumstances.