Why Philanthropists Are Spending Themselves Out of Existence

Due to the onslaught of the COVID-19 pandemic, philanthropists have brought new momentum to a less popular style of philanthropy: spend-down, or time-limited, philanthropy; in which charitable foundations spend their assets by a certain date, then close up shop. Foundations and donors alike are realizing that humanitarian and environmental issues won’t be solved by only allocating 5% of their assets to charity every year.

Although this concept is nothing new, it is outside of the norm. About 70% of foundations are designed to exist in perpetuity, while about 30% have established deadlines on their spending, according to a January 2020 report by Rockefeller Philanthropy Advisors and Campden Wealth. Over the past 20 years, spend-down philanthropy has been growing steadily since 2000, and the current crises seem to be accelerating the movement. Comparing Gilded Age philanthropists, like Andrew Carnegie and John D. Rockefeller, to philanthropists today, Gilded Age philanthropists started their foundations when they were in their 70s while today, philanthropists are starting at a much younger age. Philanthropists are also becoming more comfortable throwing money at certain problems because it’s now easier to measure the impact they’re having. People are more and more confident that they can have impact by giving at a much faster rate.

Individuals in favor of perpetuity for foundations say it will take a long time to end problems like poverty, racism and bias against girls and women and contend that doing so will require a slow stream of funding over many years. Although there is clear value in acting with urgency and dealing with pain and suffering in the current moment, there is also a benefit in thinking in terms of generational long-term change.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today