Program Recap—Perpetuity or Limited Life: How Do Family Foundations Decide?

Wednesday, July 29, 2009

More than 30 grantmakers gathered on July 9th for a discussion of family foundation lifespan considerations co-sponsored by the Foundation Center and Philanthropy New York. We asked David R. Wolcheck, Research Associate at the Foundation Center, and Loren Renz, Senior Researcher for Special Projects at the Foundation Center, to provide us with a recap of the program.

The program began with a report by Loren Renz on key findings from the Foundation Center’s new study, Perpetuity or Limited Lifespan: How Do Family Foundations Decide? This was followed by a discussion of the reasons behind lifespan decisions and the considerations needed to follow through on them by three grantmakers/panelists with different perspectives on this issue. Moderated by Larry McGill of the Foundation Center, the discussion was not a debate of the merits of one path or another, but rather a discussion of what should go into the decision-making process and what it means to choose perpetuity, limited life, or something in between.

Among the panelists, Jane Silver, President of the Irene Diamond Fund, presented the spend-down foundation perspective, while Josie Lowman, Chair of the Surdna Foundation‘s Board of Directors, brought the perpetual foundation viewpoint. Doug Bauer, Executive Director of the Clark Foundation and formerly of Rockefeller Philanthropy Advisors (RPA), addressed the issue based on his experience as an advisor to family foundations. Finally, audience member and respondent Anita Nager, formerly the Executive Director of the Beldon Fund, provided the perspective of a foundation that had already closed down.

Ms. Silver offered some background on the donor-willed limited lifespan of the Irene Diamond Fund. She mentioned that while spending down doesn’t inherently affect grantmaking strategy, for them it did mean that the Fund could award larger grants without having to worry about depleting its corpus.

In the case of the Surdna Foundation, there was an assumed perpetuity for the first few generations after the foundation was established. Though far removed from the decision, Ms. Lowman spoke at length about the family aspect of maintaining the foundation in perpetuity. That decision ensures that the foundation will remain a means to engage the family in philanthropy, although getting subsequent generations to join its board isn’t always easy.

The report findings suggest a trend toward a greater level of engagement on the topic of foundation lifespan options—and specifically on spending down—if not a measurable increase in the proportion of family foundations choosing to follow that path (11.6 percent of survey respondents, up from 11 percent in 2004). Mr. Bauer unequivocally affirmed that he saw an uptick in the discussions on the topic during his tenure at RPA, especially after Bill Gates and Warren Buffett had announced the intention to set a limit on the lifespan of their philanthropies.

As with any discussion regarding financial decisions, this program was contextualized by the current economic climate. Faced with drastic reductions in their endowments, perpetual foundations like Surdna have had to re-consider existing payout structures, and limited-life foundations like the Irene Diamond Fund have had to deal with liquidity issues due to tied-up investments.

One important point stressed by Ms. Nager was that lifespan planning is an important—if not necessary—part of developing a foundation’s or a donor’s strategic plan. And no matter the path taken, understanding what each lifespan choice entails helps a foundation to set concrete goals that will then shape the blueprints for investments and payout.

UPDATE: Anita Nager was gracious enough to share more of her thoughts on foundation lifespan with Smart Assets. You can read her Thought Leaders post on the subject by clicking here.

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