A post to Exponent Philanthropy's blog

Perpetuity or Spend Down: It’s Not a Binary Decision

Getting clear on your foundation’s lifespan is one of the most fundamental decisions your board will make. It affects virtually everything else you do. Think for a moment of the difference in, say, a 25-year lifespan or one of perpetuity when it comes to setting grantmaking priorities, managing investments, engaging the next generation, or running daily operations.

This lifespan decision is often cast only as a binary choice: spend down or remain in perpetuity.

There is actually a spectrum of options.

Considering perpetuity

Perpetuity means everlasting, an indefinitely long duration. A foundation’s decision toward perpetuity may be driven by the donor’s intent or family legacy. Perpetuity can provide long-term, sustained giving to important issues and opportunities for increased impact. It also can serve as an open door to engage future generations in philanthropy.

The Oldham Little Church Foundation long ago made the decision to remain in perpetuity. President & CEO Paul Sanders shares that “after [founder] Morris Oldham died in 1955, the trustees discussed whether to donate the balance of the endowment to another faith-based foundation or stay the course as Morris Oldham had outlined in our articles of incorporation and bylaws. The trustees decided to continue Morris Oldham’s vision and spend in perpetuity.”

Considering spend down

Creating an intentional path toward closing a foundation is most often referred to as spending down, sunsetting, or establishing a limited life. Factors affecting a foundation’s move toward spend down include the opportunity for more focused giving, greater immediate impact, and the ability to provide more significant, less-restricted funding to grant partners. Sunsetting also can encourage greater involvement and enjoyment in the here-and-now while releasing the worry entailed in future giving and foundation operations.

Frances Sykes, founder & president of the Pascale Sykes Foundation, describes several key elements contributing to her foundation’s spend-down decision:  “The board recognized that we could create significant change in a short period if we dedicated all our funds to [our mission of] showing the world that working low-income families can achieve their dreams.  I also felt that my children might develop other interests. I could not expect them to support a mission that might not be aligned with their interests.”

Considering a third way

Between the endpoints of perpetuity and spend down exist other options for determining a foundation’s future. A number of private and family foundation boards have agreed, for example, to revisit the lifespan question on a regular basis or at particular milestone moments. These check-in points could be at each strategic planning cycle, when there are significant leadership succession events, or simply on some periodic schedule, such as every 5, 7, or 10 years.

For these foundations, transparent agreements provide guidance for governance and management. How are our investments performing? Does our board remain fully engaged? In what ways are our next generation of leaders interested in participating? Are we still making an impact on the issues we care about?

Other foundations take a pragmatic, mission-driven approach to their futures. Case in point is a private foundation whose founder provided no direction on lifespan. Its approach is to use principal when needed to generate additional impact in its focus areas, and to manage its assets accordingly to avoid “accidental spend-down.” The board and staff understand the trade-off between growing the endowment and having impact in the community—and have chosen to focus on impact while retaining sufficient resources to support the foundation’s efforts going forward.

Peer advice and counsel

As your foundation considers the options ahead, give thought to the advice and counsel of others who have asked themselves the same existential questions:

“Investment diversification is very important, and it should be evaluated continually. Maintain continuity and longevity on the board.  The growth of endowment is directly related to the wisdom and foresight of those directors.”

—Paul Sanders, President & CEO, Oldham Little Church Foundation

“If you are concerned about donor intent, about your foundation being a burden to your children or your controlling from the grave, spend down. If you are concerned about funds being spent on family retreats instead of going to grantees; and if you want to make an impact, spend down.”

—Frances Sykes, Founder & President, Pascale Sykes Foundation

“If you have the luxury of considering options, do not rush or force a choice. There may not be one right decision, rather a best path that emerges over time. Test ideas and consult peers.”

—Executive director of a spend-down foundation

 

Jeff Glebocki is founder & lead advisor for Strategy + Action/Philanthropy, which supports foundations, nonprofits, and institutions to become catalysts for change in the communities and causes they serve. He is also foundation coordinator for the Doll Family Foundation of Shaker Hts., Ohio; and a former board member of Exponent Philanthropy.

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