If you and your family have a family foundation, particularly one that involves multiple generations, chances are you’ve had an important conversation every now and again that starts something like this:
- How long do we want our giving to last?
- What change or impact do we want to see happen through our giving, and within what timeframe?
- Do we really want to do the work of a foundation, forever?
(And the unstated question that might be on everybody’s minds: Do I really like working with my family in this way? Do the rewards outweigh the headaches?)
This past weekend I facilitated a board meeting for one of the family foundations I manage. This topic came up for them—whether their foundation would exist in perpetuity, or sunset (a term that means to gradually spend down) over time. As I listened to the good points they raised, I became clear that perpetuity is about so much more than timeframe.
If you’ve started this conversation within your family (or if you’re an advisor, the family you serve), here are some steps toward better understanding perpetuity.
1. The first step is to understand the financial truth of the situation:
- How long will your money last at your current level of giving?
- What other scenarios might your asset manager provide? (In other words, how many years do would the foundation have if you, doubled your annual giving? How much would you have to distribute annually if you want to “close shop” in 10 years?)
- What’s more important to you: growing the endowment? Or saving the administrative costs of running a foundation over time?
2. After that, it becomes personal:
- Where will you be in 10 or 20 years? What will your life look like? Obviously, your age determines your perspective. Add 20 years to your age, and imagine for a few moments what life will be like, what you will care about, and what will be expected of you.
- What role will you want the foundation to play in your life? How much time will you have to dedicate to it? How important will it be to you to keep it going (either for yourself, or for your kids or grandkids)?
- Are there other family members who might take the lead with the foundation later on?
3. Next, consider your grantees—especially those with whom you have a strong partnership:
- What would happen to these grantees if your funding goes away?
- How might you provide them support or an exit strategy if you decided to close shop?
- Does the possibility of supporting them for 10 years with a payout of 20 years exist and, if so, what would that look like?
As you can see, the debate on perpetuity versus spend-down is not black and white. There are many options to consider, all worth the conversation.
Have you been there? Or are you discussing perpetuity versus spend-down with one of your clients? Use the comment section below and share your experience.
