A blog series on Sunsetting a Foundation

“Far and away the best prize that life has to offer is the chance to work hard at the work worth doing.”

Theodore Roosevelt

There is growing discourse that charitable foundations should not be held in perpetuity; the needs of today’s society outweigh the benefits of holding onto charitable assets for generations. Sunsetting, or spending down a foundation, requires more than just legal considerations. Like any company, sunsetting a foundation has both an emotional as well as an economic toll. To help you think this through, there are six questions to consider before shutting down your charitable giving vehicle. These six questions can be applied to a private foundation or a donor advised fund (DAF).

Questions to Ask when Sunsetting a Foundation or DAF

  1. Would you have more impact by spending down your foundation or by maintaining it for generations to come?
  2. What role do you see the next generation playing in a sunsetting scenario and in a legacy scenario?
  3. What financial plans do you have? Financial plans from both your own wealth planning (taxes) perspective and those of the Grantees that you support. This is particularly important for those you provide with multi-year or “Big Bet” grants.
  4. How does society benefit from holding on to these assets past your lifetime?
  5. What are the costs (familial and operating) associated with maintaining a foundation in perpetuity?
  6. How narrow is too narrow and how broad is too broad when you decide to spend down?

Pro’s and Con’s of Sunsetting

Pro’s for SunsettingCon’s for Sunsetting
Reduces the need for multi-generational foundation asset managementMulti-generational wealth planning may mean a loss of the financial decision-making meetings that bring family together
Founder retains control of decision making until the endTransmission of family values may be obscured over time as the foundation no longer reinforces those values
Provides opportunities for greater immediate impact within the charitable sectorReduces the pool of capital for organizations who may depend on long-term secure access to funding
Unburdens the Next Generation of decision-makingDisconnects the Next Generation from the relationships that the Founders had with the Grantees
Allows for funding pivots based on societal needs and quick response decision-makingReduces the working capital that long-term/ relationship-based Grantees have access to
Provides organizations with a clear timeline of financial dependency and opens the door for conversations on Big Bet PhilanthropyFunder will lose the ability to leverage networks for additional support to organizations that have been de-funded
Allows for Moonshots or Big Bet riskFounder may not see the results of the impact of a Big Bet and the inheriting generation may not have working capital set aside to continue supporting the growth of the Moonshot
Allows the Funder to celebrate the fruits of their labour while still alive!

Whether to sunset a foundation or not is a multi-factor question that goes beyond financial commitments. A successful wind-down conversation should have all the players at the table, this includes both family and advisors. Others you may want to include in the discussion are your Grantees and issue-area experts.

With everyone at the table, spend time assessing the ripple effect of the closure. As part of this planning time, include ways to celebrate the impact of the Foundation and to celebrate its legacy.

Over the course of the next few weeks we will post a series of articles answering the Sunsetting a Foundation questions.