Because private foundations are by definition private (i.e., no public board of directors), they are under the most scrutiny from the Internal Revenue Service. In addition to considerable compliance filing requirements with federal and state tax authorities, they must distribute at least 5 percent of their assets annually and pay 1 percent to 2 percent tax on investment income. Tax deductions are limited to 30 percent of adjusted gross income of the donor (versus 50 percent in other vehicles) and nonliquid assets are deducted at cost (versus at fair market value for other vehicles). Operating costs tend to be in the 3 percent to 4 percent range.

So what's the appeal? Well, like the old "Millionaire" TV show, a private foundation can make grants to individuals. You can also name family members as directors. And should you need a large deduction (say, from a bonus or IPO), you can put your windfall into your private foundation, take the deduction and only have to relinquish control of 5 percent of it immediately.

But Hastings says the freedom of a private foundation comes with a considerable price tag.

"Any estate planner won't recommend them unless you're willing to part with at least $10 million and more like $20 million. That's the threshold to start one," he says.

Donors who prefer the freedom of a private foundation without having to build one from the ground up might prefer a supporting organization. These hybrid vehicles operate much like a foundation but under the umbrella of a specific public charity. Some of the names mentioned on televised Public Broadcasting System fundraisers may be supporting organizations of PBS, for example. Entry threshold for an SO is in the $10-million range, says Hastings.

Beverly Hills estate planning attorney Jon Gallo says for some clients, foundations and family go well together.

"It's a wonderful way to give kids from affluent families a sense of stewardship. This money is something that we're fortunate to have, and part of what we do with our money is to use it to help other people."

Donor-advised revolution
The less affluent will instead want to consider donor-advised funds, 88,000 strong and growing at an annual rate of 9 percent. With $14 billion in assets under management, DAFs are the charitable equivalent of the mutual fund revolution in the stock market, giving donors the ability to direct their philanthropy at an entry point as low as $10,000 without all the paperwork and compliance issues of a foundation.

Here's how a donor-advised fund works: You make a donation to, say, a community foundation, they create a fund under your name and manage the investment for you and you take an immediate tax deduction (up to 50 percent of your adjusted gross income). For instance, if your AGI is $100,000 and you donate $60,000, you can deduct $50,000. There is no tax on earnings. Better still, many DAFs, including those offered by NPT, accept a wide range of assets, including appreciated securities, real estate, restricted stock, proceeds from life insurance and even foreign securities, which are deductible at fair market value, not cost.