The Rise of Spend-Down Philanthropy

More Philanthropists Give Away Their Foundation’s Assets in Their Lifetimes

By Veronica Dagher

person holding a roll of money, spend-down philanthropyA recent Wall Street Journal article gives some great information about philanthropy.

Their adult children had successful careers, were raising families in different parts of the country and simply weren’t interested in the same causes their parents were passionate about.

That unwillingness to take over the family foundation eventually forced the parents about a year ago to make a difficult decision: Start spending down the foundation while they’re still alive.

“They didn’t want the foundation to become a burden,” says Ms. Burns, a principal with Riverbridge Partners.

More philanthropists are choosing to donate all of their foundations’ assets within their lifetimes. About 50 years ago, only 5% of the total assets of America’s largest 50 foundations were held by spend-downs. In 2010, that number had risen to 24%, according to Bridgespan Group in Boston.

“It’s a significant shift. For many decades, donors setting up foundations just assumed they’d be around forever,” says Melissa Berman, chief executive of Rockefeller Philanthropy Advisors in New York.

Part of the reason for the change is disinterest among heirs. But there’s also a desire on the part of philanthropists to potentially effect change within their lifetimes, advisers and experts say.

“Like Bill and Melinda Gates, they [some philanthropists] believe that they can make deep investments to address today’s biggest problems, and that other donors will emerge in the future to tackle the problems of tomorrow,” says Elliot Berger, managing director at Arabella Advisors in New York City.

Another primary reason for giving while living is the donor’s ability to control how funds are distributed, Mr. Berger says. “Many storied foundations have seen a mission drift as a result of what could be described as an inevitable distance between the vision and values of the founders and their heirs,” he says.

When a foundation does decide to spend-down, there are some missteps donors need to be aware of, advisers and experts say.

These foundations may not have a clearly stated goal, and since time is of the essence, donors really can’t waste time making mistakes and learning from them, Mr. Berger says.

Foundations with limited durations may be more risk averse, which could prevent them from funding more complicated causes that may take longer to bear fruit, he says.

In addition, spend-down foundations often make the mistake of not communicating early and often enough with staff and grantees, says Jen Bokoff, director of GrantCraft at Foundation Center in New York City, which offers advice on how to make grants.

Giving grantees plenty of notice will help them better prepare for the time when the foundation’s funding is removed. And it will give the foundation more time to help grantees network and find new funding sources, says Betsy Brill, president of Strategic Philanthropy in Chicago. The firm works with both donors and their financial advisers.

Foundations also shouldn’t keep their spend-down a secret from other givers. “Let peer funders know about the closure so that they can help carry out the work the foundation began and possibly form partnerships,” Ms. Bokoff says.

Ms. Dagher is a columnist for Wealth Adviser at WSJ.com in New York. She can be reached at veronica.dagher@wsj.com.

Source: Wall Street Journal – WSJ.com

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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