In a given year, very few foundations spend themselves down, but the occasional extinction of the largest ones generally creates a stir. Olin spent itself out for ideological reasons; Brooke Astor closed her late husband’s fund because he had no children and she was more than 100. The trustees of the Aaron Diamond Foundation decided that if they spent all the money in 10 years, they could construct a major AIDS research center, something they would never have been able to afford had they limited themselves to paying out a mere 5 percent. In so doing, the donor’s name gained a prominence it never would have achieved had the foundation tried to live forever. The Atlantic Philanthropies, an international foundation with financial offices in Bermuda, plans to spend down its $3.6 billion during the lifetime of its president, Chuck Feeney, the 79-year-old founder of Duty-Free Shopper. Arguably, small philanthropists who run family foundations or donor-advised funds have even more reason than their larger counterparts to spend down. "If you have a million dollars to spend," remarks Olin Foundation President James Piereson, "what will that mean to spend the proceeds of a million dollars over perpetuity? That’s $50,000 a year. Really, what are you accomplishing?"

Interestingly, the Olin Foundation’s aggressive spending propelled the organization (whose assets peaked at $100 million) to the forefront of conservative thought, allowing it to play like a $400-million hitter on the political field; it could afford to spend 20 percent of its assets annually instead of the 5 percent or 6 percent that perpetual foundations tend to distribute. "There are a few who say, ‘Why are you doing this? Because we really need the money, and it’s akin to committing suicide,’" Piereson says. "Had we not followed this strategy, we could not have spent that aggressively over the years, so our grantees would not have seen the size of grants that we made."

Forever Is a Very Long Time
The most famous advocate for spending down came not from the political right but from the left. In 1929, Julius S. Rosenwald noted how many trusts had been set up for causes that no longer existed: orphanages, apprenticeships, an 80-year-old fund for pioneers passing through St. Louis to the Western frontier. Rosenwald—who made his fortune by streamlining Sears, Roebuck and Co.’s catalog warehouse and who spent millions on YMCAs and schools and colleges for black students in the South—warned that foundations might one day care more about themselves than about those they were supposed to help. "I think it is almost inevitable that as trustees and officers of perpetuities grow old, they become more concerned to conserve the funds in their care than to wring from those funds the greatest possible usefulness," he wrote in the Atlantic Monthly. "If the funds must exhaust themselves within a generation, no bureaucracy is likely to develop around them."

Richard Goldman, the widower of an heir to the Levi Strauss fortune, believes history has proven Rosenwald right. "I’ve been disappointed that so many of these foundations have become very self-serving for the people running them," he says. A benefactor of Jewish and environmental causes, he plans to spend as much as possible of the remaining $430 million in the Richard and Rhoda Goldman Fund by the end of his life, willing the remainder to his daughters’ foundations. "I think that’s the purpose of philanthropy, not to build reserves but to give away money," says Goldman, who is 83. "The word perpetuity bothers me because I can’t measure it. What’s perpetuity? When does it end?"

Most family foundations are structured to live forever. A survey conducted in 2003 by the Council on Foundations found that only 11 out of 169 officers said their family foundations were established with the intent to go out of existence at some point. Some 108—almost two-thirds—indicated that either the founder or current board members believed they should keep the foundation going forever.

The reasons are numerous. Ike Leighty, a manufacturer from Waterloo, Iowa, regards his foundation—now valued at $6 million—as an instrument to bring his family together as much as a means to accomplish good. For that reason, he wants his children to keep the foundation running after his death. "He thinks it’s a good way for a family, especially a family that is geographically dispersed, to work with and to get to know each other and appreciate our differences, instead of just getting together for Christmas," says Jane Leighty Justis, his daughter and a fund trustee. At the same time, the senior Leighty, now 88, recognizes that rather than drawing his heirs together, disagreement over how to spend the money might drive them apart, at which point he has given written permission for the trustees to turn over the endowment to a community foundation. Even with this provision, challenges persist. "With each generation," his daughter notes, "it definitely gets more complex."

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.

Those of us who establish a family foundation should stipulate a succession plan in the bylaws. The bylaws of foundations already in operation can be amended by a simple vote of the board of trustees. Changes at older foundations that were established as trusts rather than corporations require a judge’s approval. Clearly, a foundation will want to adjust its investment strategy as it approaches the last 25 years of its life, shifting assets from high-risk to low-risk asset classes. Trustees also will want to change the amount—and type—of grants the foundation distributes in order to wean organizations that have grown too dependent.

Ex Hubris?
Many advocates of perpetuity say it is not hubris that makes them want to keep their foundations alive. Rather, they do not want to abandon the world they leave behind. "Many conscientious philanthropists say the problems of our grandchildren, our great-grandchildren and their great-grandchildren are going to be just as important in their eras as our problems are now," says Dorothy Riding, president and chief executive officer of the Council on Foundations, which has fought congressional attempts to raise the 5 percent foundation pay-out rate. "I know all of the arguments pro and con. I hear, ‘Well, that’s OK, because other foundations will come along,’ but that’s not a given."

The record indicates philanthropy is not dying out. Two-fifths of all large foundations in existence (with assets of $1 million or more or yearly gifts exceeding $100,000) were created in the 1990s and now account for about one-fifth of total foundation wealth, according to the Foundation Center in New York City. Much of that volume derives from the largest charity in the world, the Bill and Melinda Gates Foundation, and much of the rest from the tech boom. It is questionable as to whether the next growth period will generate as much wealth—or as much charity. But Rosenwald never doubted that the economy operates in cycles, and that generosity would surface repeatedly. In a follow-up article published in 1930, at the advent of the Great Depression, he wrote, "We may be confident that if a public need is clearly demonstrated, and a practicable way of meeting that need is shown, society will take care of it in the future." In this way, to spend down one’s foundation requires a profound faith in the future—and enough humility to keep one’s name out of it.

Illustration by Jim Frazier