Considering the lifespan of your nonprofit organization is vital to successful planning and operations. What would society look like today if the great philanthropists of the 19th century, such as John D. Rockefeller and Andrew Carnegie, had contributed all of their assets during their lifetime instead of designating endowments for the benefit of future generations?
Within the nonprofit community, the most effective way to create an impact in the world can be broken down into two distinct giving philosophies. According to a 2009 Foundation Center report, 12% of nonprofits are planning to contribute all of their assets within this lifetime, 63% are established to grant funds in perpetuity, and the remaining 25% are undecided as to the future plans of their organization. Although one philosophy is not proven to be more impactful over the other, there are many aspects to consider when planning the lifespan of your organization.
Limited life organizations, or those planning to spend-down all of their assets within a certain amount of time, ascertain that the idea of philanthropy will survive time and that each generation will produce charitable organizations to combat current societal issues. Further, as stated by Bill Gates of the Bill and Melinda Gates Foundation, which has decided to sunset 20 years after the passing of both founders, “the more I learned, the more I realized there is no time.” Allocating all resources in the present could potentially thwart off existential threats such as climate change, poverty, bioterrorism, and warfare. Additionally, it has been said that limited life organizations are more successful in achieving objectives and remaining focused under the direction of founding members. Lastly, in spending within a designated amount of time, organization members are able to evaluate immediate results. If the plan is to organize as a spend-down organization, it is best practice to create a timeline and strategy for the spending, as well as the dissolution. It is also important to communicate this strategy to your grantees and surrounding community as they may be relying on your organization’s funding and will need to secure alternative funding post-dissolution.
Organizations established as endowments to contribute assets in perpetuity believe that grantees should be assisted with a constant flow of resources. Additionally, a permanent organization has the ability to leave a legacy as well as extend an opportunity for involvement to future generations who share the organization’s commitment to the cause. Assets held in perpetuity also have the potential to grow significantly larger due to investment returns, which could ultimately result in more funding to address issues. Some fear that organizations structured in this way may stray from the founder’s original intent as time progresses. Successful endowments can avoid this issue by creating a flexible mission statement that can be easily followed over time by successors. In establishing an endowment, one should also consider enlisting financial planning expertise in order to ensure growth and the ability to fund in perpetuity.
Regardless of which philosophy your organization chooses to follow, it is important to plan your organization’s spending and objectives to help ensure goal achievement. For further information on your organization’s future planning, please feel free to contact your L&B professional at 858-558-9200.