Private bank Coutts has today published a guide that explores the debate around the longevity of charitable foundations and the impact they have, comparing foundations that exist indefinitely to those whose capital is distributed over a set period.
The guide Perpetuity or limited lifespan: How do charitable foundations decide their longevity? identifies the many issues surrounding the pros and cons of perpetuity and limited-life options, featuring case studies of foundations that have grappled with making decisions about how long-term social change can best be achieved.
The guide was launched at a Coutts Forum for Philanthropy held last night, hosted in association with The Diana Princess of Wales Memorial Fund, which together with the Joseph Rowntree Charitable Trust debated the merits of both alternatives.
Many foundations are established to exist in perpetuity, meaning that the capital investment is not spent, and only the interest earned on the investment is distributed to causes. Such charitable foundations provide ongoing financial support to their chosen causes, often for many generations.
Alternatively, ‘spend down’ trusts as they are commonly known, representing a relatively small part of the foundation landscape, will have a limited lifespan as the capital and its interest is distributed over a set period, such as the donor’s own lifetime.
Lenka Setkova, director of philanthropy services at Coutts commented that the debate has been heightened by recent high-profile legacy announcements by people such as Chuck Feeney, founder of The Atlantic Philanthropies, Sir David Sainsbury or Bill Gates who have pledged extensive giving either in their lifetime or during a specific time period.
“There are advantages and disadvantaged to both options," said Setkova. "Some of the advantages of limited lifespan foundations might include the ability to honour donor intent and preserve the founder’s vision. In some cases the causes that a philanthropist might focus on could really benefit from a significant donation.
“However, as illustrated by the work of the Joseph Rowntree Charitable Trust, positive social change often needs patience and persistence and some family foundations exist in perpetuity to create a lasting legacy for the family. Whatever the longevity of a charitable foundation, the key challenge is to ensure that all philanthropic resources are leveraged to maximum affect.”