JP Morgan’s Justin Nelson weighs the cost of a foundation

Deciding to give is the easy part for most wealthy families. The harder call comes next: where should the money sit before it reaches a charity? Justin Nelson hears that question often. A managing director at J.P. Morgan Private Bank, he heads the Asset Management and Financial Principals Coverage Team in Connecticut, a 20-person group that advises leaders in hedge funds, private equity and real estate. Justin Nelson’s JP Morgan profile notes that he also manages relationships with endowments and foundations across New York and Connecticut. For many of his clients, the choice comes down to two structures: a private foundation or a donor-advised fund, known as a DAF. “I sometimes describe a donor-advised fund as giving you much of the experience of having a charitable foundation without having to operate a foundation,” Nelson says. What a private foundation costs to run A foundation offers the most control. A family can seat its own board, bring children and grandchildren into grant decisions and put its name on an institution meant to outlast its founders. Nelson says that appeal is real for families who want philanthropy itself to become a family enterprise. Then comes the overhead. JP Morgan’s own side-by-side comparison of the two vehicles lays out the rules. A private foundation must distribute 5% of the fair market value of its assets each year, and any shortfall left undistributed past the deadline is hit with a 30% excise tax. Grants are disclosed publicly through an annual Form 990-PF filing. Initial funding typically starts between $1 million and $2 million, before legal and accounting fees are paid. The IRS also levies a 1.39% excise tax on a foundation’s net investment income. The deduction isn’t as generous, either. Cash gifts to a foundation can be deducted up to 30% of adjusted gross income, compared with 60% for a DAF. For publicly traded stock and other appreciated assets, the ceiling drops to 20%, against 30% for a DAF. None of that runs itself. Nelson says a foundation’s control comes bundled with administrative, tax, reporting and governance work, and someone in the family has to own it. “A foundation makes sense when the infrastructure itself is part of what you want to build. A donor-advised fund makes sense when you primarily want an efficient vehicle for giving.” Why donor-advised funds keep growing A DAF works more like a charitable account. The donor contributes assets, takes the deduction when eligible, then recommends grants over months or years. The paperwork is handled by the sponsoring organization. JP Morgan’s comparison puts the typical minimum contribution at around $10,000, with no startup costs and no annual payout requirement. That low barrier shows up in the data. DAFs held about $326 billion in assets in 2024, up from $250 billion a year earlier, according to the first Annual DAF Report from the DAF Research Collaborative, which was compiled from IRS filings and reported by The Chronicle of Philanthropy. Donors put $89.6 billion into the accounts that year and granted $64.9 billion to charities. Private foundations still gave more: $118.5 billion. Nelson’s explanation is short: simplicity. A DAF separates the timing of the tax decision from the timing of the charitable one, so someone who sells a business, exercises stock options or books a large capital gain can make a bigger contribution that year and pick the recipients later. “A donor-advised fund lets you make the financial decision today and the philanthropic decisions over time,” he says. Washington gave that feature new weight. Under the One Big Beautiful Bill Act, itemizers can deduct charitable gifts only above a floor of 0.5% of adjusted gross income starting in 2026, and top-bracket taxpayers get a deduction worth 35% instead of 37%, Thomson Reuters reported. Plenty of donors didn’t wait. National Philanthropic Trust, one of the country’s largest DAF sponsors, opened more than 3,700 new accounts in the final two months of 2025, up from nearly 1,700 in the same stretch of 2024, The Philadelphia Inquirer reported. Its 2025 grants climbed 72% to a little over $10 billion. Justin Nelson on timing the gift Picking a vehicle is half the work. “The most tax-efficient charitable gift is often not a check,” Nelson says. Highly appreciated securities are the classic case. Donated directly, they can support a charity while avoiding the capital gains tax a sale would have triggered. High-income years, liquidity events and portfolio transitions can all open a window to give more, and Nelson says a DAF helps because a family can make a large contribution when the deduction is worth the most without sending every dollar out the door at once. The estate plan belongs in that conversation. For families that already intend to leave assets to charity, coordinating those bequests with what heirs receive can make the whole plan more efficient. “You don’t want the investment strategy, the tax strategy, the estate plan and the charitable plan operating independently. The real opportunity comes when you design them together,” he says. Nelson, who has served on the board of the Breast Cancer Alliance, has seen giving from the other side of the table. His advice for families that haven’t started skips the structure chart. One approach he suggests: agree on a few shared causes that take 60% or 70% of the annual giving budget, and let individual family members direct the rest. “Before asking, ‘Which charity should we give to?’ I think families should ask, ‘What problems do we care about solving?’” Nelson says. The right structure, he adds, depends on each family’s tax and estate circumstances. That’s a decision to make with tax and legal advisors in the room. DISCLAIMER – “Views Expressed Disclaimer – The information provided in this content is intended for general informational purposes only and should not be considered financial, investment, legal, tax, or health advice, nor relied upon as a substitute for professional guidance tailored to your personal circumstances. 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