In 10 Years: More Foundations Aim to Sunset

June 17, 2016

In this third installment of Next10, our conversation series about Northwest philanthropy trends to watch in the next decade, we spoke with Erin Kahn of Raikes Foundation and June Wilson of Quixote Foundation, about the trend of private foundations opting to sunset rather than exist in perpetuity.

Responses have been condensed for length and clarity.

Nicole Neroulias Gupte, Philanthropy Northwest senior communications manager: We’ve been hearing more in recent years about foundations opting to give away all their money by a set year instead of existing in perpetuity. The Bill & Melinda Gates Foundation, which is the world’s biggest foundation and here in Seattle with us, plans to sunset within 20 years after the deaths of its founders. Both your organizations are part of this emerging trend of time-limited philanthropy, with Quixote Foundation wrapping things up next year and Raikes Foundation aiming at the year 2038. How and why did you make that decision?

June Wilson, Quixote Foundation

June Wilson, Quixote Foundation executive director: When [Arthur “Stuart” Hanisch] founded Quixote Foundation in 1997, he didn’t set it to exist into perpetuity or to sunset; he just left it open. After he passed away in 2002, his son Erik and Erik's wife Lenore looked at what the organization was trying to accomplish and decided that given our $25 million asset size, we could have greater impact by spending all of the assets. We started calling it "spend up" because for us, it didn’t feel like a death or something sad, but a way to move into our purpose and make sure that our purpose was accomplished in that 20-year timeline.

Nicole: Quixote Foundation calls it "spending up" instead of "sunsetting" or "spending down." Erin, how about Raikes Foundation? I believe you prefer the term "time-limited philanthropy?"

Erin Kahn, Raikes Foundation executive director: We’ve been using "giving in time" more recently. Our target date of 2038 was set where Jeff and Tricia [Raikes] will be in their 80s and no longer in a place where they have the time and energy to engage as deeply in the foundation. They really feel like an important aspect of the foundation, the asset is the use of their voice and their active engagement in setting strategy and really being directly involved as active donors. Another important factor is their sense of urgency about the problems we’re working on and wanting to deploy more capital now.

Nicole: You can give more and give faster if you're not concerned about keeping things going forever, in other words?

Erin Kahn, Raikes Foundation

Erin: We have a $124 million endowment, so we wouldn't have a $20 million grant budget this year if we were just basing it on the 5% minimum required distribution. You also have a greater sense of risk tolerance because you’re not as motivated by protecting the assets of the foundation to exist indefinitely. Jeff and Tricia are more willing to make bolder moves in their giving because they’re not as tightly bound to protect their assets and the reputation of the foundation for years and years and years to come. They can’t guarantee that successive generations of Raikes Foundation trustees would operate in the same way. So it's their belief that more now is better.

June: As a foundation with a smaller asset size, instead of $5,000 grants, we can give out $25,000 and $100,000 grants.

Erin: If you’re in a situation where you’re anchored to that 5% payout rate, you know your budget fairly predictably and you plan your giving around that price point, rather than saying that we have a great opportunity to do some really innovative pilot work, even though we didn’t know about it at the beginning of the year. You can elevate your giving to meet new opportunities.

Nicole: Does your mission factor into the decision? Does it make more sense to be time-limited if you’re trying to solve a specific problem, as opposed to generally supporting a community?

June: Quixote’s mission is to see free people in fair societies in a healthy planet: Free, Fair & Healthy. We fund nationally, including reproductive rights; election integrity; media reform; environmental equity; issues of diversity equity and inclusion and particularly supporting organizations led by people of color. I laughed as you asked that, because there is no clear solution to free people in fair societies on a healthy planet in 20 years! We won’t see it in our lifetime. And as a small foundation, we’re just one drop in the bucket around that. But we’re clear around the purpose we’re trying to get to, and we know it will take others, too.

Erin: Raikes Foundation is focused on empowering young people to transform their lives. In King County, we focus on ending youth and young adult homelessness. In Washington state more broadly, another strategy area is to strengthen the quality of after-school and out-of-school programs for young people. Our third area is a national education strategy, increasing the post-secondary completion rate, particularly for students of color.

Nicole: But if a foundation is working on finding a cure for a disease, there would have a logical end point. On the other hand, for something like supporting the arts in Seattle, there needs to be some model of perpetuity for that.

Erin: If you’re a time-limited funder, I don’t think that presumes the problems you care about will be solved in the convenient time frame of your foundation. Many of the big social issues and challenges that philanthropists work on are not necessarily going to be solved in five years or 20 years or 30 years. But there will also be new donors coming into the sector at that time. It’s philosophically OK if today’s living donors are investing deeply in the challenges facing us in our generation and to be able to go at those problems in very deep, ambitious ways makes sense — and to trust that in the years to come, there will be a new crop of philanthropists who have the capacity and the interest in using their wealth to address social problems. It’s reasonable to assume that will happen.

Nicole: Many foundations also tend to be conservative about impact investing and advocacy — going beyond the grant — partly because they’re trying to exist into perpetuity. Have you been able to do more of that because of your time-limited model?

June: Impact investing started really gaining momentum and getting some legs underneath it when we announced our plans. If we had thought about it earlier, we might have looked more at it. I’d be curious as foundations look to spend everything, how they look to make those decisions now.

Erin: We have guidelines and a philosophy and an approach to our investments, but it's not a driving criteria for the investment management approach.

June: Whether we’re spending up or not, we know the money is just one component of the change that can happen. Quixote has always been active in advocacy. In terms of staff and donors, the circles that we move in look different across the board.

Erin: Advocacy is a big part of our work. For Jeff and Tricia to be spokespersons is an important part of our toolkit. The fact that Jeff and Tricia can personally and actively play a role in that themselves is certainly part of how we use their voice.

Nicole: What kinds of things have you been able to do that you couldn’t have done as a foundation existing in perpetuity?

June: We had a lot of flexibility to seize new opportunities, particularly in 2009, when we saw a significant amount of our assets go away because of the stock market. We saw $10 million pretty much go away overnight. With 10 years left, we realized that we might not have the extra give — but we also didn't need to pull back. We continued to lean in and give at least at the same level and in some cases give a little more because other foundations were having to pull back. Our grantees were surprised and grateful! More recently, we supported net neutrality with a $1 million grant to Media Democracy Fund, which was a huge grant for us. To see a big policy change happen was just so rewarding and fulfilling. Our resources were just one part of making that happen, but if we were continuing into perpetuity the kind of investment we made would have been very different — much less. Would they still have gotten there? Potentially. But did we have a big impact? Absolutely.

Nicole: What about the challenges of sunsetting? Who will be picking up where you leave off?

June: It’s very interesting! There is some anxiety, because it’s really important for us to see our grantees as the future. It’s not about what we did; it’s about how they can continue to do the work. It’s about giving them the ability and the capability to keep moving forward. Our perpetuity lives through them. And we had to ask ourselves, "Can we still seize new opportunities with only a year and a half left?" New opportunities came up in part due to the energy generated by Black Lives Matter, but could we support racial equity work now if we weren’t going to be able to build the relationships? We ultimately said that it’s not about our timeline; it’s about the purpose we want to have in the world. We’re looking at where the future continues to move the purpose forward, beyond the lifetime of Quixote. Being able to lean into those opportunities, even in the 11th hour, we’ve been willing and able to do it even though it feels a little scary and risky because we have very little ramp to continue those relationships.

Erin: You’ve provided a good summary of your rationale. I can imagine that in the next year or so, you’ll have a lot of decision points about how you wind down well, to your grantee partners and your staff team, and leaving the legacy you hope to achieve. It’s a really important time for you to be thoughtful in your approach and it sounds like you’re doing that.

June: It’s funny to hear the luxury of you talking about 2038! And with the same kind of hope and inspiration. I’m cheering for you.

Nicole: You've each given your grantees plenty of time to get used to this idea, too.

June: When we announced in 2010, we really worked with them to look at what it meant for them and what it meant for us. We allowed them to decide, did you want the money spread out evenly over the next 5 years or front-load it? They each made the decision that worked best for them.

Erin: Most funders who are very near to the term of closing the foundation do have to plan for how much in advance of that final day in the office are you still making new grants? How do you make those grants in a way that doesn’t create a cliff for your key grantee partners? How do you keep your team in place to sustain the work and support it when folks know that their job is going away? We’re far away from that so we’re working on how we ramp up, how do we accelerate our investments. Right now, we’re still in a mode of how we continue to invest more and achieve greater impact rather than thinking about how we exit in a stable way.

Nicole: Anyone trying to change your mind?

June: We had colleagues in the field, particularly since we’re giving to grassroots organizations, some of them were saying, “Please, please don’t go! We really need you in some of these arenas to support this work.” It was hardest for our philanthropic colleagues, they were sad, but completely understanding and exited for us at the same time.

Erin: It’s possible there will be one more generation of the foundation after Jeff and Tricia, but under no circumstance would it go beyond that.

Nicole: What advice would you give to others thinking about this approach?

June: When we announced our plans in 2010, people were constantly asking us about it. We’re not advocating one way or the other. It’s asking the question that is helpful.

Erin: It’s a good planning exercise, just like any other strategy conversation. I would encourage other organizations to be really intentional and thoughtful about what path they choose and why, and to really have that be an exercise the organization goes through and spends time wrestling with. They may decide to exist for generations to come, and that’s good, or they may take more of a giving in time approach, and that’s good, too. In some cases, the foundation is a vehicle to bring multiple generations of a family together to work side by side in their philanthropic endeavors. If that’s important to your foundation, then a perpetuity approach may make more sense. In the case of the Raikes Foundation, Jeff and Tricia very much want their kids to be very philanthropic and to be community-minded, but they don’t want to assume their children will choose the same philanthropic interests, or will want to place such emphasis on using their time for philanthropy.

June: Sometimes in the field, we hear "do this" or "do that." Do it because it makes sense for what you’re trying to achieve and let go of one way is more right than the other. Find the way that’s best for the way you want to make change in the world.

Erin: It’s not an issue of a right or wrong answer. It’s about making an informed choice that’s aligned with your values and goals and not just assuming the default. The decision about that time horizon should be a thoughtful choice aligned with the goal of the foundation. I think we’ve been operating in the sector with this default model that foundations should exist into perpetuity, and these rules about payout requirements are based on this default. It’s not that giving in perpetuity is wrong and this giving in time is right, but that you’re thinking about your approach and that it’s in line with your values and the approach you want to have with your foundation.

Our Next10 series discusses philanthropy trends we're seeing in 2016 — Philanthropy Northwest's 40th anniversary year — that may become mainstream by our 50th anniversary celebration in 2026. To suggest a topic for a Next10 conversation, email Nicole Neroulias Gupte, Philanthropy Northwest communications manager, at ngupte@philanthropynw.org.