Stakeholders experience the impact of sunsetting a foundation in several ways. In this second installment on sunsetting a foundation we will explore the impact, or ripple effects, that winding down a foundation has on NextGen inheritors.

If you haven’t already done so, we recommend reading the first post on Sunsetting a Foundation. This earlier post poses questions that will inform the answers found below.

Creating & Documenting Impact

The current size of your foundation + investment performance – the ongoing and future commitments = the total funds you will need to deploy in the spend-down process.

Philanthropic impact is measured in three ways:

  1. at the individual level,
  2. at the capacity level of an organization and
  3. at the societal or sector level creating shifts in the issue area.

When you consider sunsetting, the type of impact you want to have may shift from where you are currently fostering change to another type of impact.

The impact you generate is, in part, influenced by the size of donation, the commitment to the organization and the type of program or agency you are supporting. Be clear on what is important to you. The role that your philanthropy plays in generating social impact and your own perception of risk (donor risk tolerance) is a key factor in determining when and how to wind down your charitable giving.

Because your influence on the giving strategy is finite, it is important to recognize the values and orienting stories influencing the inheriting generation and their philanthropic identities and risk tolerance. These influences will be implementing the spend-down and defining what impact looks like.

Documentation

Some foundations that were originally established as a legacy foundation (i.e. one that was not originally intended to sunset) may require a review and revision to governing documents. The items in your governing documents that you will want to take note of are:

  • Terms, roles and responsibilities of Board Members
  • Funding and investment policies
  • Grant-making and disbursement policies

For a complete list of the documentation that families may want, please see this Family Capital chart.

Once you have looked over your governing documents and have made the necessary changes, you can plan the financial spend-down.

Examples of a spend-down

  • Rapid ramping up of funding to outpace the investment growth, a levelling out period, then a controlled spend-down. The original investment base and the original disbursement levels will influence whether the spenddown can be within the lifetime of the Founder.
  • Design the spend-down at the point of inception of the Foundation. Set up the financial forecasting and the disbursement calendar as early as possible. This allows you to make adjustments and manage the “surprises” of market fluctuations so as to not drastically affect that multi-year commitments. This also ensures that sunsetting timelines do not extend beyond what the Founder feels is reasonable.
  • Making a Big Bet (or series of Moonshots). Deploying large amounts of capital over a specific period of time (typically between 3-5yrs) to higher risk ideas, start-up organizations or scaling solutions.

As part of this planning process, you set the stage to engage the Next Generation/Inheritors. Ultimately, you want the transition to be as smooth as possible. This requires having a sense of the time horizons of all parties involved. By providing an engagement timeline, you allow the Next Generation to plan their own involvement and commitment level to the Foundation and to supporting your legacy.

In a sunsetting model, the role of the Next Generation will be one to support the plan in several ways; in its creation AND execution, but most certainly, in the final stages of deployment. This will likely require conversations with Next Generation leadership around what their roles and responsibilities will be if the Founder is not available to give guidance and input.

Guiding from the Grave

One way to “guide from the grave” is to have a clear funding directive (specific organizations or issues areas). This directive should be written with the Next Generation leadership at the table. By including them in the creation of the foundation spend-down it will make it easier for them to execute. This conversation also allows for some emotional discussions around family legacy, mortality and values. 

By engaging with the Next Generation early in the design and implementation of the funding scheme sets the table for a successful transition of wealth and leadership at the Foundation level and in the overall family wealth.

What’s Next?

The next installment will focus on the impact that sunsetting has on Grantees and the foundation’s ecosystem.

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