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In perpetuity or limited lifespan: How do philanthropists decide the longevity of their giving

14/08/2017 Lenka Setkova, director, Coutts Institute ,

In recent years, philanthropy leaders have engaged in an increasing number of debates about the advantages or disadvantages of philanthropic funds existing in perpetuity or for a limited lifespan - also known as ‘spend down’ foundations. 

This debate has been heightened by major philanthropists such as Bill and Melinda Gates, Lord David Sainsbury of the Gatsby Foundation and Chuck Feeney of Atlantic Philanthropies, who all very publicly committed to ‘giving while living’ or to disbursing their philanthropic assets during a specific time period.  

So how do philanthropists decide the longevity of their philanthropy?  

Commonplace among founders of sizeable charitable trusts (or other such philanthropic structures) is to provide an endowment, the income from which is distributed to charitable causes so it can exist in perpetuity. 

This approach has been used by many well-known philanthropists whose legacy lives on today through charitable structures established many decades ago, such as Andrew Carnegie and the Rockefeller brothers (as illustrated in the Coutts Million Dollar Donors Report interview with the Rockefeller Brothers Fund). 

The benefits of philanthropic structures that exist in perpetuity can include: having a long-term horizon and persisting for many years in addressing deeply rooted, seemingly intractable social or environmental issues; the development of a strong institutional memory that a charitable trust and other philanthropists can learn from; and, in the case of family foundations, providing opportunities for future generations to engage in philanthropy and cascading family values through the generations. 

Limited life or ‘spend down’ philanthropic organisations still represent a small proportion of the philanthropic landscape. Some of the motivations for spending down may include: fear of mission-drift after the founder’s death; a wish to make a significant impact during one’s lifetime; a belief that philanthropic pounds are worth more now than in the future; or a sense that a social or environmental issue could be ‘resolved’ with significant short-term resources - such as potential breakthroughs in medical research or a commitment to eradicating, for example, Malaria as in the case of the Bill and Melinda Gates Foundation. 

Interestingly, there are also cases where decisions to exist for a limited lifespan have been reversed. The work of the Joseph Rowntree Charitable Trust (JRCT), whose mission is to promote peace and a socially just world, is a great example of this. Joseph believed that if funds were applied to discovering the underlying causes of problems, then England would be transformed in a short period of time. 

He therefore established two trusts for a 35 year period. In his visionary 1904 Memorandum he gave future trustees unfettered powers to continue the work if they could find the right trustees and if there is still work to be done. JRCT remains a major philanthropic foundation today. However, to meet Joseph’s original wishes, trustees regularly review whether its work warrants continuation.   

Family foundations face distinctive questions when considering their lifespan. As family foundations mature and move to the second and third generation, their philanthropy can become more complicated due to factors such as varying interests of family members, geographic dispersion of the family or the lack of interest on the part of the next generations. There are, however, many examples of family foundations who successfully navigate change and longevity, as illustrated by the interview with Anna Southall, fourth generation trustee of the Barrow Cadbury Trust, in the Coutts Million Dollar Donors Report. 

So while the starting point for major philanthropists is often to establish philanthropic funds that will exist in perpetuity, questions relating to longevity and consideration of the associated pros and cons have become more commonplace. For many major philanthropic foundations that are as yet undecided about their longevity, these questions have become important aspects of regular strategic reviews as they consider how they might best achieve their mission or objectives given the changing contexts in which they are operating and the resources they are able to bring to bear. 

To read more about the Coutts Million Dollar Donors Report click here

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