Private Foundation Sunset Clauses
An interesting essay in the WSJ (free link) last week talks about private foundations with sunset dates:
Plans to sunset foundations within a generation of the founder’s death have a long history. Julius Rosenwald, an early investor in Sears Roebuck, helped to create a network of almost 5,000 schools for Black children across the South during the early 20th century. He was the first major philanthropist to place a formal ending date on his foundation: 25 years after his death, which was in 1932.
But the strategy has become much more popular in recent years. According to a study by the Bridgespan Group, in the 1960s foundations with an end date represented just 5% of the total assets of America’s largest foundations; by 2010, that figure had risen to 24%. Melissa Stevens, executive director of the Milken Institute Center for Strategic Philanthropy, says she is seeing more donors who want to disburse funds quickly to address issues such as climate change, racial injustice and pandemic preparation. She notes that “younger donors want to put philanthropic capital to work more expediently to tackle those issues.”
Traditionally, sunsetting a foundation has appealed to more conservative donors. Bill Simon, Jr., who manages the Simon Foundation along with his six siblings, says that his late father set a closing date because he had seen “foundations that seemed to veer off of their donor’s intent.” Simon recalls: “Dad trusted his own seven children to know where he would have put his money…But as much as he loved his grandchildren, he did not know them.”
The idea of sunsetting a foundation doesn’t have to mean rushing to give away money. Rather, it gives staff and board members a clear time frame for thinking about larger gifts. Walker himself serves on the board of a new climate-change-focused foundation called Waverly Street, created by Laurene Powell Jobs, that has a 10-year time frame for sunsetting. “It is an urgent issue around which we want to contribute moonshots and accelerating solutions,” he says.
It is easier to encourage philanthropists to adopt a sunset clause rather than trying to change the law to mandate faster giving. Bill Simon says that the process of planning for the end required some forethought but wasn’t very complicated. For most of the Simon Foundation’s life, he says, its endowment was invested in a traditional mix of approximately 60% stocks and 40% bonds. A couple of years ago, the board started to be more careful “in terms of commitment and liquidity.” They had to make good on grants they had promised and kept a higher percentage in cash or fixed-income assets. The foundation also needed staff until the end to ensure the work was finished. But “it was kind of remarkable how it all worked out,” Simon says.
darryll k. jones