For many foundations, establishing the payout level has become fairly perfunctory. The staff or accountants do the math and the foundation pays out the 5% required by law. However, I have worked with foundations that struggle to balance their desires to solve the problems of today and to protect assets for the future.

In family foundations the payout decision has an additional dimension. Many families see maintaining the assets for the next generation as part of the family legacy or charge they were given by previous generations.

Today drastically reduced assets make the payout decision particularly painful. Many foundations who continue pay out at 5% can cut their grantmaking by a third or more in 2009.

What’s the right thing to do? Like most family foundation issues, I don’t think there is a right answer.

However, I do think there is a wrong answer. The wrong answer is to assume that the foundation will maintain a 5% payout without careful study and discussion. Payout at 5% may or may not be the best option, but unless the board is aware of the impact that decision will have on the issues board members care about and the grantees the family has been supporting, the board will be making an uninformed decision.

Consider how one foundation I worked with found a solution. Concerned that their pattern of sticking to the 5% payout formula could limit their thinking and options, particularly with regard to supporting important but very large program-relevant projects, trustees decided that they would continue to plan and budget at a given payout level. But they explicitly agreed to consider supporting unusual grantmaking opportunities beyond that level—and they have.

Crises, such as that our economy faces, demand strong leadership. Board members can make sure substantive discussions about key issues like pay-out vs. level of support for grantees take place. Boards can be thoughtful, weigh the alternatives, and come to decisions that satisfy their stewardship responsibilities to both the institution and to grantees. Staff can provide helpful information, but board members need to decide.

Today governance as leadership requires going beyond the perfunctory about payout to face issues about the foundation’s role both today and tomorrow.

Get Involved

Search Knowledge Center for Resources!

We’re here to help you on your philanthropic journey. Contact NCFP for support!

Get Assistance

Keep up with trends in family philanthropy. Subscribe to our newsletter!


Family philanthropy improves the quality of life for all. Join our family!

Join Now