Stories From The Spend Down Journey

Posted by on May 14, 2021 in Articles, Blog | 0 comments

Stories From The Spend Down Journey
Sunset near the mountains

I’m very pleased to share this blog on “stories from the spend down journey” which I wrote for the National Center for Family Philanthropy (published April 21, 2021).

To be or not to be?  More accurately, to spend down or to remain in perpetuity? Much has been written about the pros and cons of this existential inquiry in philanthropy. This article shares practical observations from the field about the strategies, tactics, and approaches that limited life foundations have used and guiding questions for families to consider in their own discussions.

Be clear on the “why” of spending down

It might seem like an obvious question with an obvious answer. But it’s really important to dig deep and surface the motivations behind your foundation’s decision to sunset. Articulating a shared understanding of the “why” will shape many, if not most, of the actions your foundation will make going forward. This shared agreement also provides a transparent context to frame discussions about differing perspectives which may arise about the “how” of your foundation’s spend down.

Perhaps your founder(s) gave explicit directives or provided implicit permission to future generations on closing the foundation down. In other situations, family engagement or interest in the foundation may diminish to the degree that spending down becomes a desirable option. Sometimes, the mechanisms which generate the foundation’s assets are structured in such a way as to call the question about spend down, such as royalty payments or real estate holdings.

Of course, spending down can also open the door to having a significant impact on priority issues and organizations your family and/or founders have cared about deeply. How might a significant gift impact a health or medical issue that is of particular importance to you? Are there organizations you have deep, trusting relationships with that would benefit from endowed positions or ongoing operating support through a designated fund? Might there be unique capital projects and naming opportunities to preserve the legacy of the foundation?  Is there a neighborhood or community that has special meaning to the foundation which concentrated support could make a lasting difference?

Getting clear on the “why” may also reveal critical background details that aren’t as visible as one might think. One family foundation was funded by royalty payments on patents for products developed by the late founder.  As the expiration date on the patents—and the revenue streams—approached, the board chose to spend down. About a year after developing the sunset plan and timeline, the foundation’s attorney discovered another patent and revenue stream existed. Back to the drawing board for an updated plan!

Develop a strategy and timeline to guide your decision making

Embarking on your foundation’s spend down journey is unlike your usual body of grantmaking, management, and governance work. The choice to sunset affects virtually every decision in every aspect of the organization. There is, indeed, a finality ahead which calls for a different set of questions.

Organizing a strategy to guide these deliberations takes much of the stress and the unknown out of the equation. Well-planned spend down strategies are often rooted in the foundation’s values and legacy. If the passions and priorities have not surfaced in determining the “why” of your decision to sunset, be intentional about exploring those and arriving at shared agreement with your board. Again, this provides the context for the “how” which the spend down strategy will articulate.

Sunsetting your foundation is a unique, once-in-a-lifetime moment. Be as clear as possible on what you want to accomplish through this opportunity, and how you want to do that. Here are some of the guiding questions I’ve used to help family foundations shape their spend down strategies:

  • How important is honoring the legacy of the founders, the family, and the foundation through the sunsetting, and why?
  • What issues or problems do you want to prioritize to have a positive and long-lasting impact on?
  • Are there particular communities, populations, or organizations you want to focus on? Why these?
  • How will the world (or at least your corner of it) look differently as a result of your spend down strategy?
  • What kind of grantmaking approaches will you consider using, and which are you less inclined towards? (Establishing endowments, creating legacy funds, supporting capital campaigns, prize philanthropy, etc.)

Central to the spend down plan is the projected date when the foundation will “turn out the lights.” Setting this calendar often emerges from the “why” discussion, but there can be any number of other factors to consider. Are there particular leadership and board succession issues at hand? Are there specific endeavors the foundation wants to complete before shutting down? Do any family dynamics exist that would affect the spend down calendar?

The process for determining the sunset date begins with building out a quarter-by-quarter calendar and schedule of actions. This schedule defines what has to happen and when to fulfill the spend down strategy, and who’ll be responsible for each step. Again, the decision to spend down affects virtually every aspect of the foundation:

  • How will we adjust our investment policies through the spend down period?
  • In what ways do we need to adapt our board and committee meeting schedules and agendas?
  • Will our grantmaking process serve our needs and those of our grant partners, and how might we refine that process?
  • How do we retain our staff through the sunsetting process?

The spend down strategy and timeline should address how the foundation will track its progress through the plan.  Weaving in self-accountability check-ins at milestone moments helps ensure adherence to the agreed-upon plan.

Secure guidance for the journey

Getting to shared agreement on the “why,” the “how,” the strategy, and the implementation is essential to effectively and efficiently completing the sunsetting process that meets the foundation’s goals. Working with an outside consultant to plan and facilitate this effort can ameliorate the sense of being overwhelmed by the scope and volume of decision making. Additionally, a facilitator can lend a hand in guiding potentially difficult decision points to successful conclusion.

In addition, it’s essential that foundations moving towards spend down have an attorney knowledgeable about the thicket of IRS rules and regulations governing the sunset process.

Finally, your investment advisor and accountants should also be engaged in organizing and implementing your spend down strategy. They can help align your investment policies and budget with the sunset approach and timeline to make the best possible use of your assets.

Communicate with family, staff, and partners

A family foundation’s decision to spend down has potentially far-reaching implications. Devising and implementing a communications plan can be very helpful in moderating the real or perceived impact of the decision for all stakeholders—family members, staff, and most importantly the communities and causes you serve. Tell your story about the “why, how, and when.”

  • Identify who you need to share these plans with internally and when to do so. Are there non-board family members, including next generation members, who would appreciate being kept apprised? And be sure to engage staff throughout the process given their key role and the impact on their future with the foundation.
  • Be particularly sensitive in your interactions with past, current, and potentially future grant partners. Provide them sufficient time to prepare for the foundation’s absence, and consider making support available for the transition and possibly beyond. Make the foundation accessible to your grantees for their questions and concerns.
  • Engage and reach out to your funding and community partners so they are aware of your plans. Give them time and advance notice to adapt for your foundation’s departure, and be there to answer questions and listen to their comments and concerns.

Consider the long-lasting and deep connections your foundation has established over the years. Authentic and trust-based communication honors the people and organizations who have become partners in making your work possible.

Document your story for future generations and for the field

Every family foundation that sunsets has a unique story to tell about how the foundation got started, the work it accomplished, the people and places it helped, and yes, about the “why” and “how” of the spend down process itself.

Give thought to recording or archiving your spend down story to share with others. It could be as simple as a DIY photo book or series of recorded interviews with leadership and core grantee partnership. Perhaps make it an assignment for an ad-hoc board committee; or, if you want to go further, engage a librarian or archivist to formally organize the foundation’s materials. Future generations of the family will appreciate having this important part of history documented.

In bringing your foundation’s work to a thoughtful close, you also have the opportunity to strengthen the field of family philanthropy. Highlight what you’ve learned, what you’ve experienced, and what insights you would share with other family foundations giving thought to embarking on a similar journey.