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Stepping Up To The Lifetime Giving Challenge

Resource type: News

Forbes | [ View Original Source (opens in new window) ]

By Betsy Brill.  Last month Bill Gates and Warren Buffett issued a call to action to their fellow billionaires to publicly pledge at least half of their fortunes to philanthropy. The “Giving Pledge” initiative has already triggered generous responses from high-profile donors. In response, Eli Broad, KB Home founder and former chairman of insurer SunAmerica Inc. and his wife, Edythe, pledged to give 75% of their wealth to philanthropy both during and after their lifetimes, and Microsoft cofounder Paul Allen recently stated that a “majority” of his $13 billion estate will go to philanthropy.

But the Broads and Allen share more than a promise to give away the majority of their fortunes; they share a commitment to do so, in large part, during their lifetimes. The Broad Foundations have already invested more than $2 billion in education, medical research and the arts while Allen’s total giving over the years has reached about $1 billion, reflecting his interests in science, the arts and education. In a public statement, the Broads explained their motivation: “We agree with Andrew Carnegie’s wisdom that ‘the man who dies rich, dies disgraced. Philanthropy is unbelievably rewarding, and we hope others will also realize the benefits of being active, engaged philanthropists.”

Fortune magazine estimates that if everyone on the Forbes 400 list of the wealthiest Americans took the “Giving Pledge”, an additional $600 billion could flow to U.S. charities. While this is exciting to contemplate, the real question at hand is whether this increase in philanthropic dollars will have an impact on pressing issues in local and global communities. A lot will hinge on the payout approach taken by donors. Will they choose to “spend down” their endowments within a specified timeframe thus providing funds directed at current needs? Or will they make sizeable contributions to their foundations, most of which pay out only a small percentage of their assets every year, around five to 6%, while preserving the rest in perpetuity?

I believe the “Giving Pledge” provides a valuable opportunity for donors at various wealth levels to consider or reconsider Carnegie’s “giving while living” approach to charitable giving. In June, The Atlantic Philanthropies issued a report, Turning Passion into Action: Giving While Living, that defines “giving while living” as “the decision by a donor to spend his or her philanthropic resources while alive, and generally, but not necessarily, with the donor’s active participation in the giving program.”

While the philanthropists profiled in the report are each using different methods to address pressing social issues, they have all adopted a hands-on approach to their charitable giving. For example, Atlantic Philanthropies founder and Duty Free Shoppers Group cofounder Chuck Feeney decided to spend down his foundation’s assets by 2020. By giving during his lifetime, Feeney is able to share both his fortune and business acumen with organizations working to solve urgent social problems.

In addition, a recently published Aspen Institute study on foundation spend down, Is Time of the Essence: Being Strategic in Spending Down–or Choosing Perpetuity in Endowments, confirms the growing interest in giving while living or “spend down” among high net worth donors. The study found that while the majority of foundations and trusts do not have any language in their bylaws regarding lifespan, the spend out option is becoming increasingly attractive to donors who have become more concerned with their ability to exert control over the investing and spending of their foundation assets due to the economic crisis.

Both the Atlantic and Aspen Institute reports show that while there is no one lifespan approach that all donors should adopt, the timing of one’s giving should be an important consideration when donors are establishing foundations or considering how best to support the causes they care about. Both studies also highlight donors’ motivations for choosing a spend-down strategy:

–Most often, donors choose to spend down because they are interested in protecting donor intent. Of course, the best way to ensure that one’s original charitable intentions are adhered to is to become actively engaged in giving during one’s lifetime. The more removed a foundation’s leadership becomes from its founding trustees the less guarantee there is that the endowment will be used to fulfill the founding donors’ wishes. After all, it is very difficult to rule effectively from the grave!

–Another common motivation for giving while living is the desire to “attack today’s problems with today’s money”. Both Mr. Gates and Mr. Buffet subscribe to this philosophy, believing that the next generation’s wealth should be used to address the next generation’s needs. The Bill and Melinda Gates Foundation, the largest private charitable foundation in the world, plans to close 50 years after the death of its last founding trustee. In explaining his rationale for spending-down, Gates said, “The more I learned, the more I realized there is no time. Disease won’t wait.”

–Spend-down can also be a means by which philanthropists give the next generation an option about how to engage in the family’s philanthropy. Should the younger generations of a family have interests that diverge from the founders’ intentions, older generations may consider passing a portion of the foundation’s endowment to younger generations for use in perpetuity while spending down other funds.

Regardless of what their personal motivations may be, donors who choose to give while they live share a belief in their ability and responsibility to help realize some measure of positive social change during their lifetimes. It is my hope that not only will the billionaires responding to the Gates-Buffet challenge consider this option, but also that “everyday” philanthropists will do the same.

In next month’s column, I will explore the ways in which donors at various asset levels can implement an effective and meaningful giving while living strategy.

Betsy Brill is founder and president of Strategic Philanthropy, Ltd., a philanthropic advisory firm based in Chicago serving clients worldwide.

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