Confronted with Urgent Crises, Family Foundations Are Reappraising the Question of Perpetuity

As the president and chief executive officer of the National Center for Family Philanthropy, Nicholas Tedesco helps leaders at family foundations become more effective stewards of their philanthropic dollars. These discussions hit on many topics, including whether the donor’s foundation should exist for perpetuity or spend down.

In a June conversation, I asked Tedesco if he could recall situations where stakeholders engaged in an acrimonious debate around the perpetuity question. He laughed and said, “A million of them!” The tension, he explained, is “centered in psychology. It’s centered on a desire and a need for control. It's centered on ego and the question of legacy.”

This fraught dynamic may explain why most family foundations don’t broach the issue. In 2019, the National Center for Family Philanthropy (NCFP) published “Trends 2020,” its second national benchmark survey of family foundations, which revealed that 9% of surveyed foundations were time limited, 28% opted for perpetuity, 18% “revisit this question periodically” and 45% “have not made a decision at this time.”

NCFP will be publishing its next installment, titled “Trends: 2025,” later this year, and while it’s too soon to say if those percentages have held steady, Tedesco said that “the psychological effects of an overwhelming polycrisis — the pandemic, racial justice movement, ongoing wealth inequality, threats to democracy — have prompted many families to interrogate their commitments and actions. The question of lifespan is much more pronounced than ever before, and rightly so, because we need to move more resources with greater intention.”

How families respond to this question will have profound consequences. Family foundation grantmakers are at the front lines of the largest intergenerational wealth transfer in history, and if even a fraction of them decide to spend down or ramp up funding, nonprofits could access billions of dollars in new support over the next decade.

“More and more families,” Tedesco said, “are recognizing the urgency and opportunity of the moment.”

Revisiting the idea of stewardship

Foundation leaders’ introspection throughout the “polycrisis” has led them to revisit long-held perceptions about family philanthropy. Take the idea of stewardship.

In family philanthropy, stewardship is often thought of as the family’s role in supervising shared assets such as investments, personal relationships, the environment, community health and wellbeing, the welfare of employees and partners, and more.

These activities lead to outcomes, some of which can be measured, which creates an ongoing cycle of evaluation in which foundation leaders ask themselves, “What does it mean to make a commitment to redeploy resources for the benefit of the public?” Tedesco said. It’s an exercise that “requires an interrogation of power and privilege; it also requires acknowledging the needs and opportunities of others above self-interest.”

This interrogation can generate a host of provocative questions. Should the foundation cut back on some qualifying distributions, like travel expenses, that contribute to its annual 5% payout and reallocate that money toward grantmaking? Is the foundation foisting its vision of change on nonprofit leaders instead of being a more collaborative and open-minded partner?

Tedesco, who we named the Best Guide to Family Philanthropy in our 2023 Philanthropy Awards, said many family foundation stakeholders have taken these questions to heart and made important operational and philosophical shifts in how they go about their giving.

For instance, families are adopting a “more flexible approach” to vigilantly identify real-time community needs and opportunities and to fund them with an abnormally large outflow of capital, Tedesco said. This philosophy dovetails with families’ growing appreciation for trust-based philanthropic practices. Like their peers at community foundations and more established legacy funders, families increasingly “want to orient themselves toward embracing the commitment to trust,” Tedesco said. “This means setting partners up for success by flexible multi-year funding, often in the form of unrestricted gifts.”

“The idea of legacy has shifted”

By reevaluating their role as stewards of philanthropic dollars, foundation leaders frequently find themselves looking at a family’s legacy in a different light.

For many givers, philanthropy is synonymous with building, strengthening and extending the family’s legacy. In some cases, this can look a lot like brand burnishing, which is why, to cite just one example, donors make naming gifts instead of cutting checks anonymously. To be clear, there is nothing inherently faulty or unethical with this mentality — after all, the money is flowing to nonprofits — but it nonetheless turns legacy into “something that was defined by those who are outside of the donor,” Tedesco said. “The public defines your legacy, and people often view it through a backward-looking lens.”

But that was then. The family foundation leaders that Tedesco has worked with are revisiting their perception of legacy with intentionality and humility. “That includes the values that undergird the giving,” he said. “It includes practices as well as the issues and communities they support.”

Imagine a family foundation that has embraced trust-based philanthropy. Whenever it gives an organization an unrestricted gift, the family acknowledges that the recipient is better equipped to solve a problem. This realization can force families to fundamentally reevaluate how they perceive themselves as philanthropists.

“The idea of legacy has shifted from names on buildings to the way funders approach relationships, and, ultimately, the way they listen and respond,” Tedesco said. “We’re in an era where we are moving from a donor-centered model to one that centers community.”

To sunset or not to sunset

Brutally honest discussions about stewardship and legacy will inevitably force family members to confront the most important decision of them all — whether their foundation should remain a perpetual institution or draw up plans to sunset.

“Stewardship in the context of lifespan,” Tedesco said, “invites a philanthropic individual or family to ask what best serves community: a time-bound partnership that allocates more immediate resources or a longer-term commitment?”

Consider a foundation operating in a rural area that’s historically underserved by philanthropy. Leaders could determine it can be an impactful steward by providing a perpetual stream of funding for a set of relatively immature organizations, building out its subject matter expertise and leveraging its role as what Tedesco calls a “sustained voice and presence” in the community.

Other funders may conclude that community members are better equipped to solve problems, and if that’s the case, why should a foundation keep 95% of its noncharitable-use assets tied up in its investment accounts until the end of time? Wouldn’t it be a far more effective steward by winding down and disbursing larger grants that drive greater impact and set nonprofits on a path to long-term sustainability?

A foundation could also split the difference by deciding to ramp up funding and set itself on a path toward winding down that could be reversed at some later point. Tedesco noted that foundations focused on the climate crisis are drawn to variants of this latter strategy. Since “the window for change is quite narrow, so many philanthropic families are putting more resources toward climate right now,” he said. “That may shift and they may decide to spend less [on climate] in the future.”

“Commit, communicate and plan”

For family foundations that decide to close their doors, Tedesco said, “We often center three practices — commit, communicate and plan.” Leaders must align with all stakeholders (“commit”); consistently and clearly transmit action items with staff, grantees and other partners (“communicate”); and set up grantees and staff for long-term success (“plan”).

NCFP also runs a learning cohort, the Strategic Lifespan Peer Network, consisting of staff, board members and family members at family foundations who are spending down or considering doing so. (I spoke with the center’s Director of Programs Daria Teutonico about the network last year, and her team put me in touch with Tedesco as well as leaders at the Rogers Family Foundation and the A. James & Alice B. Clark Foundation.)

Again, we’ll have to wait until the fall, when NCFP publishes its “Trends: 2025” report, to see if the percentage of surveyed foundations that are spending down exceeds 2020’s figure of 9%. No matter what the data reveals, Tedesco can attest that conversations in family foundation conference rooms across the country have dramatically changed over the last four years.

“Perpetuity has long been the default position,” he said. “But given the collective agitation of the last four years and the awareness that emerged from that agitation, families are increasingly challenging those norms and assumptions.”

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