Uncertainty may prompt US foundations to consider spending out
The concept of ‘spending out’ charitable endowments has become more prominent at a time when extra support is especially needed, according to research from the US.
In the US, over 62% of family foundations intend to continue in perpetuity but 11.6% will have a limited lifespan, and 25% are undecided, according to a new report, Perpetuity or Limited Lifespan: How do Family Foundations Decide.
Spending out, or 'spending down', as it is known in the US, is the term used to describe when a foundation spends both its assets and income, usually over a period of 5-10 years, and therefore has a ‘limited lifetime.’
The report presents a number of characteristics of spending out foundations. Those with a living settlor are three times more likely to spend out than those whose founder is deceased. Foundations established since 1980 and those who do not employ paid staff are also more likely to limit their lifespan than is the norm.
In the UK, of those foundations who replied to a recent Association of Charitable Foundations (ACF) survey, about 15% were intending to spend out their endowment.
ACF has been working with a group of members who are spending out, sharing practical experiences of the process. That experience is now being written up and will be available later in 2009.
“It’s clear that spending out offers immense opportunities, particularly where trustees can identify issues - environmental or medical ones for example - that may be susceptible to substantial spending over a defined period,” said David Emerson, chief executive of ACF. “For others, spending out over a settlor’s lifetime may allow more personal influence over that spending.”
Emerson noted that there is also a need for foundations that exist in perpetuity, to address the needs of future generations. He said that the ACF will be encouraging a debate in the UK about the varying benefits of funding over a limited timespan as against those of funding in perpetuity.
The full report from the US is available from the Foundation Center website.