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October 7, 2013

Foundations have several ways of deciding whether to operate forever or to put all their resources to work in a limited time. Most of the rationales have to do either with the founder’s wishes (some want to take the long view and leave a perpetual legacy, some prefer to give while they’re alive or for just a short time after their death) or else with the nature of the problems they want to address (curing a disease right now vs. exploring medical frontiers far into the future). But in family philanthropy, there’s a whole other calculation, one that isn’t obvious and that many donors don’t think about when they set up a foundation for their family:

What if they have lots of descendants?

Normally, that would seem to be something to celebrate (and it is, of course). But how likely is it that all those later generations will be able to sit around a Board table and agree on how the family’s charitable dollars should be used?

Not long ago, Virginia M. Esposito, president of the National Center on Family Philanthropy, spoke to the Foundation Impact Research Group at the Sanford School about why families choose to create either perpetual or time-limited foundations. (A video of her presentation will be here soon.) One factor Ginny raised was that by the third generation, keeping a family’s foundation focused and harmonious can become especially hard. By that time, the founder may not be alive or active in the philanthropy, and there may be a dozen or more grandchildren and great-grandchildren with views on how the charitable dollars ought to be used. Even if they’re all trying to hew close to the founder’s wishes, are they all likely to have a similar idea of what those wishes would be? Disagreements erupt; emotions can get raw.

Something similar happens to family businesses, of course. But there, at least, the primary goal is concrete and largely unchanging: turn a profit. In philanthropy, there are many kinds of “profit,” and personal values and passions figure heavily in how “profit” is calculated. A dozen children and grandchildren, from multiple branches of the family, may have a hard time finding common answers. In many cases, according to Ginny, the choice comes down to either breaking the foundation into separate pieces or spending it down to zero.

In choosing to limit his family foundation to a fixed term, Charles Bronfman stopped at a single generation, preferring to let his children make their own philanthropic choices. “At the heart of the family decision,” he wrote in an open letter in 2011, “is the desire that each generation should be at liberty to engage philanthropically in support of their individual commitments and passions in their own ways.” He would not, he vowed, “be the cold fist trying to rule from the grave.”

If Ginny Esposito is right, ruling from the grave might not have been much of an option anyway, at least not for long.

(By the way, the Andrea and Charles Bronfman Philanthropies, which will sunset in three years, has launched a blog about their spend-down process, called “Making Change by Spending Down.” The blog is a partnership with the Foundation Center’s GrantCraft service.)

Tony Proscio