#119 Sybil Speaks: To Spend Down or Not To Spend Down That’s the Question

Mar 06, 2023

If you are donating to worthy causes, I am guessing you’ve asked yourself whether to give it all away in your lifetime or over a set period of time. This is what’s called “spending down” in philanthropic circles. This month Sybil is going to investigate the right conditions to spend down, versus the benefits of investing your assets so that you keep giving to the cause you care about in perpetuity. Whether one of these strategies is better than the other is hotly debated in philanthropic circles. Sybil works with both types of philanthropic clients - the spend-down kind and the in-perpetuity kind - and she is here to tell you that there is no one right way here, just a series of pros and cons depending on how you want to show up for the cause you care about and the nonprofits you support.

There is already a lot of material out there that discusses the issue of spending down but most of it is too strident about one way that is the “right” way to go. That’s why Sybil is entering the fray to talk overall about the pros and cons so you can decide for yourself what’s best for you.

Episode Highlights:

Top two indications you may be leaning towards an in-perpetuity strategy.
Top two indications you may instead be leaning towards a spend-down strategy.
When to choose an in-perpetuity strategy
When to choose a spend-down strategy

Sybil Ackerman-Munson Bio:

With over 20 years of experience as a nonprofit professional and foundation advisor, I work with philanthropic institutions and foundations interested in successful, high-impact grant making, so you can make a true and lasting positive contribution to the world on your terms.

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If you enjoyed this episode, listen to these as well:

#69 Tips to Support a Nonprofit in Pursuit of Best Practices with Patton McDowell, Founder, PMA Consulting

#109 Why do People Give, With Sybil & Fred Ackerman-Munson

#110 The Data and Facts Behind Why People Give, With Laura MacDonald Board Member Giving USA and Founder of Benefactor Group

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Full Transcript

Hello everybody I'm very happy to give you a very special episode of Sybil Speaks. The topic is to spend down or not spend down, that's the question.

We're going to focus on this for the month of March. I'm interviewing some really cool people like Bruce Laurie, who's the executive director of the Ivy foundation. I'm going to talk to him about why their foundation decided to spend down, and I'm also going to do a rerun of an interview I had with the executive director of the Brainerd Foundation Ann Krumbolz, whom they have spent down. They’ve been gone for a few years out of the space, and so I'm going to air that interview and then also talk about it. What it means now that they're gone, I work for clients that are continuing to fund in the space they funded. And so, what does that mean?

But anyway, let's talk today about my thoughts on spending down or not spending down. Here's what I think. I think it's a personal choice. I think that there's a reason to spend down, and also there are strong reasons to keep your foundation or donation strategies in perpetuity, and it really is a personal choice. I don't think there's a right or wrong answer, and the reason I'm saying this so emphatically is that over the years in my career, I've seen folks push one way or the other either.

Everyone who has funds and money has to spend down or everyone who has funds and money should keep it in perpetuity because the issues are so long and we need to be sure we're around for the long haul.

So I've and I've seen it on all sides and people sort of say this is the always only one way and that's the only one way and I don't I don't tend to ascribe to that. I tend to think about how it's important to have all of the different funding strategies because there are so many different ways to approach solutions to problems. And it's really helpful to have people who are engaging in all these different ways.

And then the question is how do you want to engage and how can you make sure you're as effective as possible? So, let's talk about that a little today and then we're going to investigate it. As I said with interviews. And then I'm also going to talk about this at length with my husband, who also, as you all know if you listen to my other podcast is a long-time philanthropist, works for philanthropy, and philanthropic institutions, and he's been their executive director for a long time and has thoughts about this as well.

All right. So, I specifically work with both types of philanthropic clients. Some of the clients I've worked with have spend-down strategies and others are in perpetuity. And so that's why I want to talk to you about the differences and what you should think about if you want to decide which way you want to go.

The first thing I want to say is the vast majority of US foundations, and this is a quote from Beyond the 5% report which I have a link to in my show notes. But the vast majority of US foundations, which number about 71,000, are set up to exist in perpetuity. But there has been a strong push recently to do spend down. So that's why I wanted to make sure we talked about it.

So let’s talk about you. What are the top two indications that you might be leaning towards wanting to have an impetuosity strategy? And let's talk about that first. Are you interested in instilling a culture of giving in your family and the heir and your heirs for future generations? If the answer to that is yes, then you'll probably be leaning towards in-perpetuity.

Or do you feel like the issues you care about will take a long time and sustain? Support over multiple generations to succeed at your goals. If that's what you feel, then you're also leaning towards an in-impetuosity foundation. You want to have your money last way beyond your time on this earth.

Here are the top two indications you might be instead leaning towards a spend-down strategy. One, do you feel that you've been extremely lucky in life, and you want to redistribute your wealth in a manner that will give back to the greatest good for the greatest number of people as quickly as possible? If that's the case, I think you'll be leaning more toward just spending it down.

Also, are you concerned that there's a strong urgency specifically in the issue you care about? And if you wait too long, there's just no time to waste to actually make a difference. If those two things ring true to you, then you're probably leaning more toward a spend-down strategy.

OK, now let's get even more in detail. So, what you're thinking about when you choose an in-perpetuity strategy? Why would you want to choose this? You might be leaning toward it. But let's talk more about this.

First, you think that solutions to societal changes and challenges you care about solving are long-term in nature. So, if you're around for the long haul, you can continue to support the nonprofits working in this area you care about, even long after you're gone. That I think is one of the major reasons that my clients that that have in brick vicinity foundations, that's the major reason that they do this, this they decide to keep it that way because the issues they care about, they know that they won't end, they just keep going and going. And so how do they continue to support those nonprofits?

You want to instill a culture of giving in your family and friends, so let's say you have a big, vibrant family that… and you have a lot of kids, a lot of grandkids, and you want. To make sure that time they've all been really lucky in life because you're doing well, you have a foundation and that means you also probably have other assets in addition to the foundation. You want to make sure that your family continues in the fabric of the culture of the family, continues to also want to be sure they give back, and that's the foundation that can actually create that deliberate conversation. Provided your family and the kids, everybody gets along well enough so that you know that even after you're gone, they'll be able to figure out a strategy and you have strong maybe bylaws and a vision because that can be a little bit of a tough nut and you want to make sure the family and the family dynamics are such that it will succeed for you over time.

Another key thing to think about with if you choose if you want to go in perpetuity is let's say you support smaller grassroots organizations and they just don't have a lot of capacity to take on a huge influx of funds. So, it's like smaller groups that you know you care about. And they're working on an issue that's long-term and systemic. That leans more towards an impetuosity foundation because even if you gave those grassroots groups a larger influx of money, first of all, they might not be able to handle that. And then you're going to be gone. And then they're going to have to figure out how to fill in those gaps and that could actually cause more harm than good. Is that something to consider if you have a situation where you have a long-term systemic issue you care about?

You have family, colleagues, and friends, you think can take over the foundation after you're gone and you are supporting smaller grassroots organizations that probably don't have the capacity to take in that larger influx of funds. I think you're going to learn more about an impetuosity-type foundation.

OK, now let's talk about when you might want to choose a spend down strategy. So, the first thing is the solution is so urgent and it requires one big push in a limited time horizon. I hear this a lot with foundations and families that are working on climate change. They feel like they need to do a huge influx of funding in the next 5 to 10 years or we've just missed the mark like there's no point after that.

Son although eyes are wide open, implementing if they do succeed implementing that work is going to take many, many years into the future. However, and that's what when I was talking about before, it's important to have lots of different kinds of foundations out there. There are going to be some, in perpetuity, type foundations that are going to work on climate change for a longer period of time.

But there are some foundations and families that are saying. Look, we just need there's this huge transition we need to put all of our money in and that's where Bruce Laurie is from Ivy. And that's when I have the interview with him this month, so. You can hear more about it.

So if you feel that your issue is super urgent. And it needs a short-term inflection of infusion of funds, then you want to do spend. Let's say also you have no heirs or family or friends that you feel really want to take over or support your vision in the future. And so, even if you did have family, they might not get along that well and they have really different ideas. You could about the future of, of how they want to be.

That means that If you have an in-perpetuity foundation, it could actually cause more stress in your family and wouldn't be helpful. So that's another reason that you might want to do a spend down. Where you're giving the funds all away now.

Another reason you might want to do is spend down is a little bit more ideological. You feel you have a moral obligation, not to hold on to the assets that you received in excess of what you might need to live a comfortable life now. That is a really important driver for a lot of people. Beyond just the practical, it's ideological.

It's like, look, I don't know if my family or I really deserve this much wealth over time, and so I want to give it back to the community right now. OK. So that's the top level, those are the top-level things to consider if you want to decide whether you want to do in perpetuity or if you want to spend down.

I offer lots of other additional resources to help you think through how to give money away effectively and with purpose. And to not end up, you know, wasting time and money of the nonprofits to yourself by approaching folks in a way that ends up not being helpful to them.

So, I'm not going to get into all of that today because, wow, that's a lot of different classes, mini-courses that I have already available for free to you on my website, so check it out. Doyourgood.com but this top-level conversation will hopefully help you think about either.

If you already are an in-perpetuity foundation, but then considering whether you want to do spend down or the opposite, maybe you're doing spending down is all the sudden thinking about the fact that, uh oh, you're having a little bit of buyer’s remorse there? Maybe I should keep some of this in perpetuity because of some of these other pieces. That may be better served for an in-perpetuity type of conversation around giving, so please think about this and consider all the different options.

And remember that there's no one right way to do this. It's important to have donors and people who are giving back to the community, from all sides of this spectrum, so I hope you have a wonderful rest of your day and until next time. Do good and be well.

#119 Sybil Speaks: To Spend Down or Not To Spend Down That’s the Question

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