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| Philanthropy |
The Paradox of Perpetuities
Matthew Schuerman
01/01/2004
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Often, the foundation founder does not give much thought to how long his or her legacy should last. Without a conscious decision to limit its lifespan, most foundations will live forever. "The prevailing world view on perpetuity or sunset is really driven by the estate planning community, not by philanthropic planners," says John Stanley, president of the Legacy Group, a foundation management company headquartered in Milwaukee. "If an investment advisor can hold on to an asset, he or she can earn more money. If it’s spent down, then they can’t." Stanley, who used to work for the YMCA, is one of the numerous independent philanthropic advisors who have opened shop during the recent family foundation boom. These advisors are not regulated or certified in any way, but if they are talented, they can bring to donors’ perspectives a long-term objectivity that financial planners seldom possess. The Forum of Regional Association of Grantmakers (www.givingforum.org) has a list of local donor groups that can make referrals. Two other good sources of names and advice are the Council on Foundations (www.cof.org) and the National Center for Family Philanthropy, which offers several pamphlets on the issue on its website (www.ncfp.org). Interested donors will want to interview prospective advisors about their backgrounds and secure references.
Exit Options
Spending down one’s endowment is not likely to result in any great tax advantages; these are most often realized when funds are first turned over to the charitable vehicle. The choice is philosophical. "What are you saving it for? is the question I always ask," Stanley says. "If your goal is to create an enterprise that is a modeling or teaching enterprise for your family, then there are good reasons for perpetuity. But if you don’t have that kind of goal in mind, then I would encourage you to consider a sunset provision." If our aim, in other words, is to eliminate world hunger, why should we wait to act until it has killed more people?
Those of us who choose a sunset provision, but who have not yet established a foundation, may want to investigate a term-limited, donor-advised fund. These accounts enable donors to dedicate a pool of money to charity in one year—often after selling a stake in a company or receiving an inheritance—and reap a tax deduction, while distributing grants over a longer period. The tax deduction allowed is greater than one would receive by setting up an independent foundation, and the community foundations, banks and mutual fund companies that operate these funds tend to carry lower overhead. On the downside, the custodian institution holds veto power over charitable contributions, and the donor does not have the satisfaction of running an independent entity. Custodian institutions are programmed to keep these funds alive in perpetuity, but a simple letter to the account manager is sufficient to ensure that the money will be spent down by a certain date.
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