To Spend Down or Not to Spend Down? This Network Helps Family Funders Answer the Question
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Throughout the 20th century, philanthropists established perpetual family foundations guided by a desire to carry on the family legacy and address needs in the near to distant future. But a confluence of recent developments — including the pandemic, the movement for racial justice, and an existential climate crisis — has prompted some givers to wonder if they could more effectively achieve their goals through a time-limited model.
“Effectively” is the key word here. For philanthropists intrigued by the idea of spending down — and especially those giving through family foundations with low overhead — the primary challenge is doing so in a way that aligns with the entity’s mission and generates maximal impact.
In June, I chatted with James B. McClatchy Foundation CEO Priscilla Enriquez about how she is tackling these issues given her board’s decision to sunset in 2030. Enriquez said she has received integral guidance from fellow members of the National Center for Family Philanthropy’s (NCFP) Strategic Lifespan Peer Network (SLPN), which is open to staff, board members and family members at family foundations that are in the process of, or considering, setting an end date for their philanthropy.
Enriquez, who co-chairs the SLPN, put me in touch with NCFP Director of Programs Daria Teutonico, who provided a detailed overview of the network. “This community of practice provides space for network members to discuss the principles and values that support an effective spend-down decision alongside the nuts-and-bolts practicalities of the process,” she said via email. “Past gatherings have included discussions on topics like communications, staff retention, investment approaches, grantmaking strategies and timeframes — all within the context of a limited lifespan.”
Teutonico also offered some valuable insights into what makes its members tick. “We intentionally talk about the question of lifespan as a ‘strategic lifespan’ decision instead of ‘spending down’ because funders who make this choice are not merely spending more than 5% or at a rate faster than their endowment grows,” she said. “They are spending to achieve their mission and their philanthropic purpose, and, in some cases, that means limiting the lifespan of their philanthropy.”
“Grapple with big questions”
The network was established 10 years ago by a cadre of limited life foundations. The Quixote Foundation, which was well into its spend-down at the time — it officially turned off the lights in 2017 — took the lead by providing financial support for the development of resources, events and convenings to shape conversations on how family foundations can spend down in a strategic way.
The Quixote Foundation’s former board members June Wilson and Lenore Hanisch were especially generous with sharing their experiences, which set the tone for future convenings. “From the beginning,” Teutonico said, “we’ve had no trouble getting other limited-life foundations to share their stories and lessons learned.” The S.D. Bechtel, Jr. Foundation has also provided support for the network.
The network’s members are philanthropic families and their partners — typically senior staff — who are committed to spending down with intention, and whose respective foundations are at different points in the process.
“Oftentimes, participants have decided to limit their lifespan but many network members are still considering the question and come to explore and learn from their peers,” Teutonico said. “Funders who are five years out from sunsetting have lessons to share with those who are 10 years out, and those who have already closed their doors are willing to candidly share lessons learned and workshop approaches.”
Teutonico noted how members appreciate the ability to discuss their challenges in a confidential and supportive environment, as well as the facilitation by network co-chairs and NCFP staff. “It’s clear that funders are eager for peer-directed, confidential spaces where they can grapple with big questions about the approach and future of their philanthropy.”
Motivating factors
In one network member survey, a respondent noted, “Tomorrow’s rich people can solve tomorrow’s problems. We need to solve today’s.” This sentiment “really speaks to the urgency many limited-life funders feel,” Teutonico said, noting that some foundations have “explicitly tied their decision to spend down to the urgency of climate change or commitments around a faster redistribution of resources to communities that have been historically marginalized.”
The survey listed four thematically linked reasons that compel network members to spend down — a commitment to alleviating current societal challenges, the wealth creator’s desire to see change in their lifetime, the desire to increase grantees’ impact, and recognition that this is a critical moment to affect change. While not a primary motivating factor, Teutonico said some philanthropists also decide to spend down due to a perceived “lack of interest in participation by the next generation.”
Teutonico noted that leaders at spend down foundations can be more attuned to grantees’ long-term success when compared to their peers at perpetual foundations, who can operate in a more conservative fashion because they know the money will always be there. “Those who make a strategic decision to spend down are often very concerned about setting their grantees up for long-term success and cementing a legacy that lives on through their impact and the communities they support,” she said. “They are making a strategic decision to activate their philanthropic capital in the immediate future so that they can have a bigger impact in perpetuity.”
Here, Teutonico speaks to one of spend down advocates’ main talking points — the idea that philanthropists owe it to grantees and society to unlock their assets in a way that will ameliorate present-day suffering, while ensuring that even though the foundation won’t be around in 50 years, recipient organizations will. Network members “recognize other funders will continue to crop up and that there are immediate needs to solve today,” Teutonico said.
A sunsetting checklist
Of course, a family foundation opts to spend down only after proponents convince the board, which can include family members concerned about generational continuity, to sign off on the plan. “One of the primary concerns for those who come to the network in an exploratory stage is determining how to broach the subject of lifespan with their board in the first place,” Teutonico said. “It can be a challenging discussion, but so many others in the peer network have had the conversation and have been in their shoes before.”
Teutonico provided the following questions leaders should ask themselves to guide this discussion:
Why spend down? What do you see as success in the near and long term?
What is the time horizon of the spend-down? What is possible with your resources?
How will you communicate the spend-down decision internally and externally?
What shifts in your social impact strategies will you embrace (if any)?
How will you adopt a commitment to be bold and responsive? Will you take risks?
How will you prepare your partners for long-term success?
How will you ensure adequate staffing through the spend-down process?
Will you need to adapt your investment strategy to ensure adequate assets for your spend-down plan?
What is the legacy of the family philanthropy?
How might the family and its members continue to engage in social impact?
Should the foundation move forward with a spend down, Teutonico said that leaders must communicate next steps with grantees in a transparent and respectful way, while providing them with capacity-building support to build post-spend-down resilience. The also need to allay staff fears about an inevitable pink slip. “We’ve learned from spend-down processes that supporting staff beyond the lifespan of the foundation by way of job search and displacement support, severance packages, etc., is absolutely critical,” she said.
Looking ahead, Teutonico said that from an anecdotal perspective, more families are “discussing lifespan as a decision rather than defaulting to perpetuity” and that “younger donors seem more inclined to consider spending down.” The network is preparing to launch its next round of research, so we’ll eventually see if her intuition is backed up by hard data. Until then, Teutonico encourages donors who are considering spending down to reach out to the network and connect with peers.
In related coverage, check out a piece by my colleague Ade Adeniji, produced in partnership with the NCFP, looking at how leaders at San Francisco’s Compton Foundation developed its spend-down strategy, which included soliciting input from the Quixote Foundation.
