Now or forever? New guide examines giving time spans
Private bank Coutts has produced a new guide exploring the pros and cons of philanthropists spending all their money over a certain period of time or creating an endowment and distributing the income in perpetuity.
Coutts director of philanthropy Lenka Setkova says: “In recent years, philanthropy leaders have engaged in an increasing number of discussions about the advantages and disadvantages of charitable foundations that exist in perpetuity and of those that exist for a limited lifespan. This debate has been heightened by the visibility of philanthropists such as Chuck Feeney, founder of The Atlantic Philanthropies, Sir David Sainsbury and Bill Gates, all of whom have committed to either ‘giving while living’ or to disbursing their philanthropic assets during a specific time period.”
Many foundations are established to exist in perpetuity, providing ongoing financial support to their chosen causes for many generations. However, ‘spend down’ trusts as they are often known, have a limited lifespan as the capital and its interest is distributed over a set period, such as the donor’s own lifetime.
The Coutts guide Perpetuity or limited lifespan: How do charitable foundations decide their longevity? features case studies that illustrate the issues related to both options.
The report gives the following reasons for setting up time limited foundations including:
- Fear of mission drift after the founder’s death
- Wish to have greater impact during the founder’s lifetime
- A belief that the foundation’s issue area lends itself to a spend down model, for example, medical research to achieve a breakthrough cure
- Not being a burden to future generations
- Ability to strategically focus and achieve greater impact
It also suggest that advantages for setting up a foundation in perpetuity include:
- Engagement across generations, shared responsibility and unity
- Ability to meet the long-term needs of people and causes assisted by the foundation’s grantmaking
- Having a long-term impact
There is a specific focus on family foundations and why they may benefit from time-limited funding. The report says: “As family foundations mature and move to the second or third generation, their philanthropy can become more complicated due to factors such as varying funding interests, geographic dispersion of the family, or lack of interest on the part of the next generations.”
The guide was launched at a Coutts Forum for Philanthropy hosted in association with The Diana Princess of Wales Memorial Fund. Guest speakers included president of The Diana, Princess of Wales Memorial Fund, Lady Sarah McCorquodale. The Fund has distributed over £100m to charitable causes since 1997 and will close at the end of this year. It believes that a strategy of focusing capital on a targeted programme of work over a limited number of years can help engender greater ambition and focus in philanthropy and lead to significant social change.
Lady Sarah McCorquodale said: “The Diana, Princess of Wales Memorial Fund was set up to continue the humanitarian work of my sister. We felt that by adopting a targeted, time-limited approach, the Fund would be in the best position to maximise its impact as a funder and as a champion of charitable causes. Shifting to spend-out also provided a fresh perspective for us, and a pressing incentive to achieve major social change in selected areas of work.
“I believe that becoming a limited life organisation has allowed the Fund to take more risks, and work in ways that might not otherwise have been possible. I also think the targeted work undertaken by the Fund has been a powerful catalyst for long-term change. That might not have been the case had we sought to extend our existence over a longer time period. Whatever the longevity of a charitable foundation, the key challenge is to ensure that all philanthropic resources are leveraged to maximum effect.”
Also speaking at the forum was Stephen Pittam of the Joseph Rowntree Charitable Trust. The Trust was established in 1904 by the Quaker chocolate manufacturer Joseph Rowntree to promote social change. Its decision to exist in perpetuity is driven by a belief that its philanthropy is as necessary now as it was when the organisation was founded and that enabling progressive change requires persistence and a long-term commitment.
The Coutts report is only available to its clients. The Association of Charitable Foundations (ACF) has also produced a guide based on the experiences of spending out trusts including The Diana, Princess of Wales Memorial Fund and the Tubney Trust.
The Tubney Trust has produced a report on its strategy of spending out following the tragic death of the founders, Miles and Briony Blackwell in 2001. The trustees decided to spend out over a ten-year period. In total the Trust’s investments allowed it to make grants of nearly £65m. Giving our all: reflections of a spend out charity, is an honest account of the Trust’s experience, including “its mistakes and detours”. Chair René Olivieri says: “Knowing you are not going to be around forever forces grant-makers not to micro-manage their grant recipients but rather to try to understand how those organisations work and think.”
To download the ACF report for free click here
To download the Tubney Trust report for free click here