Going for Broke: How Foundations Sunset, and the Reasons It’s Becoming Popular

Editor’s Note: This article originally appeared in the Fall 2015 issue of Philanthropy magazine.

Since the article’s publication, three of the philanthropies mentioned have completed their grantmaking. The Earhart Foundation closed its doors at the end of 2015, and the Donald W. Reynolds Foundation at the end of 2017. Although the Atlantic Philanthropies made final grants at the end of 2016, it remains active until late 2020. Atlantic will leave behind a significant record of its work, including the Atlantic Philanthropies Archive at the Cornell University Library and a rich website of resources. Regarding lifespan, see especially Operating for Limited Life and 2020 Hindsights: Top 10 Lessons.


“To capture the magic of compounding.” For spritely Gisèle Huff, that is both reason and reward for a limited-life foundation. Looking back over her 17 years as executive director of the Jaquelin Hume ­Foundation, she believes the big bets and sharp focus of its grantmaking have sparked outsized results. When you put significant money to work early, she advises, “you can change the world in front of your own eyes.” The Hume Foundation has another three to four years to invest its remaining assets—in its case in blended-learning strategies for improving our nation’s schools.

It wasn’t always expected that the Hume Foundation would spend itself to zero. When founder Jack Hume died, the foundation had a clear statement of donor intent that had been followed faithfully by the trustees, all of whom had known him and agreed with his guidelines. But the trustees weren’t certain Jack’s successors would share his vision. “The members of the next generation have their own careers, their own interests and, most importantly, their own views of the world,” wrote his son, William, to explain the trustees’ decision to sunset. “It is hard enough for the current trustees to adhere to his intent; it would be doubly difficult for my children to do so.” And so the foundation, established at first with aims of perpetuity, changed course. It would spend itself out of existence.

Accomplishing this takes effort. Despite his famous dictum, “He who dies rich, dies disgraced,” Andrew Carnegie himself not only failed to spend his wealth in charitable endeavors during his lifetime, but left behind a foundation intent on perpetuity. Yet his words have inspired other philanthropists to attempt to push out their resources in one generation. In the 1920s, Sears, Roebuck and Co. president Julius Rosenwald stipulated that his foundation, which constructed more than 5,000 schools across the South for the education of neglected African-Americans, would spend out its assets no more than 25 years after his death. “Our immediate needs are too plain and too urgent to allow us to do the work of future generations,” he said. Noting that every new cohort of Americans has been wealthier than the previous one, he urged that “coming generations can be relied upon to provide for their own needs as they arise.”

Recent lessons

Questions abound regarding how best to sunset. When should the spend-down begin and end? What practical challenges does it entail? There’s no one right answer. But with foundations of all shapes and sizes now in the midst of disbursing all of their assets to maximize their effect before folding up their tent, recent experience offers a variety of lessons.

Real-estate developer Aaron Diamond decided in the 1980s that his 30-year-old foundation would spend out its considerable assets over a ten-year period—a decision affirmed and honored by his wife, Irene, after his death in 1984. So the foundation made a big bet—creating the Aaron Diamond AIDS Research Center in the terrifying early years of that disease. The investment paid off. Diamond Center director David Ho was named Time’s Man of the Year in 1996 for the breakthrough “cocktail” drug treatment he and his colleagues pioneered.

Another donor committed to medical research was Lucille Markey, who directed in her will that her charitable trust spend out its resources in 15 years. Like ­Rosenwald, she sought significant impact in a brief time frame. Operating with a small staff and minimal paperwork for grantees while handing out $500 million, the trust had a powerful influence on biomedical sciences. Before closing in 1997 the Markey trustees requested that the National Academy of Sciences evaluate its performance. The reports praised the trust’s strategy of offering long-term support to promising researchers too young to win government grants. Markey’s scholars “achieved higher rank, had a shorter time to tenure, and were located in higher-ranked institutions than those in comparison groups.”

Established by Milwaukee industrialist William Brady in 1956, the W. H. Brady Foundation funded research in support of capitalism and a free society. The foundation continued his giving strategy for another 15 years after Brady’s death in 1988, devoting a significant amount of the corpus to these grants. But when the trustees couldn’t come to an agreement on completing their spend-down, a portion of the assets went into a Brady Education Foundation directed by Brady’s grand­daughter to support early learning for at-risk children.

The John M. Olin Foundation closed its doors in 2005, 23 years after the death of its founder. Olin carefully selected his staff and board members and instructed the foundation’s trustees to disburse its assets over their lifetimes. The Olin Foundation was the crucial early funder of the Federalist Society, and its funding launched a flourishing field in law and economics at leading law schools. Its commitment to sunsetting enabled Olin to achieve a level of grantmaking comparable to foundations three to four times its asset size. Observers on both right and left acknowledge that compared to what a perpetual foundation would have trickled out, Olin’s grantmaking strategy and accelerated disbursements significantly strengthened the conservative policy network.

Racing to finish

Among the philanthropies now structuring their grantmaking for shut-down are the Bechtel, Earhart, McCune, and Donald W. Reynolds foundations, the Searle ­Freedom Trust, and Atlantic Philanthropies. Some of these are very close to the finish line. Active grantmaking has already ceased at Michigan’s Earhart ­Foundation, which will close its doors on December 31, 2015. The decision to spend out was prompted by an internal review, in the early 2000s, of the foundation’s ability to preserve donor intent as the trustees grew further removed in time from founder Harry Earhart. Earhart had a crisp notion of what he hoped to achieve with his donations, focusing them on graduate students, junior and senior faculty, and independent researchers in political philosophy, economics, and culture who were doing important work in defense of liberty and free enterprise. Nine Earhart grantees went on to win the Nobel Prize in economics, Friedrich Hayek and Milton Friedman among them.

Earhart’s leadership decided to make moderate increases in its grant expenditures with the aim of maintaining its programming at a steady level until it ceased operations. This necessitated keeping a full staff as long as possible—not an easy feat when everyone knows their jobs are slated for extinction. The foundation had an attractive incentive plan to help with morale, but Earhart president Ingrid Gregg attributes the successful retention of all staff members mostly to their shared commitment to the Earhart mission. Operating with a deadline, she believes, actually refreshed everyone’s focus, discipline, and creativity.

Earhart has devoted special attention to helping grantees prepare for its absence, a common challenge for sunsetting foundations. When possible Earhart staff have made introductions to other potential supporters, and held conferences to foster contacts among scholars and organizations it funded. “We have built a base for supporting the world of ideas,” says Gregg, who is optimistic that “others will pick up our work.”

As it prepares to make its final grants in 2016, the multibillion-dollar Atlantic Philanthropies is reaching what president Christopher Oechsli calls a “crescendo,” with significant jumps in the volume and size of grants. Founding donor Charles Feeney and the Atlantic board decided in 2002—fully 20 years after the foundation’s ­creation—to limit its life. In recent years it has dramatically ramped up its capital grants, including $350 million to secure and build the new Cornell Tech campus on New York’s Roosevelt Island. (For more on Atlantic’s capital projects see “Laying Foundations for Change.”)

Grants of all sorts became fewer and bigger. Meanwhile the staff has halved since 2010, and additional departures are scheduled at six-month intervals. As manpower shrinks, grantees are being nudged to stand on their own. Matching requirements—an Atlantic hallmark—have encouraged its beneficiaries to find and cultivate co-funders, reducing risky dependence on a sole funder.

Steve Anderson, president of the Donald W. ­Reynolds Foundation in Las Vegas, has wrestled with this same issue of balancing necessary personnel reduction with retention of staff critical to ongoing operations. When Reynolds bequeathed much of his media empire to the foundation upon his death in 1993, he gave no written instructions, but left things in the hands of board chairman Fred Smith, who had worked with him for 40 years. Smith and the other trustees believed that it would be a mistake to allow the foundation to live so long that the staff and board would be far removed from Reynolds and his values. They limited the life of the foundation at first to 50 years, then shortened that to 25.

In 2009, Anderson developed a “road map” for the foundation’s home stretch that has final grants going out at the end of 2017. The manpower transition was managed via ample lead time, generous severance packages, educational support for employees let go, and a deferred compensation plan to encourage others to stay. One upside of the spend-down, says Anderson, was that it allowed funds for special opportunities beyond the foundation’s traditional focus areas.

The trustees grabbed “unique opportunities to advance patriotism, entrepreneurship, or another special lifetime interest held by Mr. Reynolds.” These included a $30 million gift to enable the National Portrait ­Gallery to acquire and build programming around the 1796 Gilbert Stuart portrait of George Washington; nearly $70 million toward creation of a museum, education center, and ­Presidential library at Mount Vernon; and $150 million to build a performing arts center in downtown Las Vegas, the largest philanthropic donation in Nevada’s history.

Do not go gently into the night

In California, the S. D. Bechtel Jr. Foundation, established in 1957, decided in 2009 to distribute all of its assets by 2020. Spending out has demanded a dramatic change in the scale of its grantmaking—from $10-$15 million in annual grants before the decision to about $143 million in 2015. The closing grants are typically larger, and more likely to include support for long-term capacity-building. “We’ve been learning from Atlantic Philanthropies,” says Laurie Dachs, Bechtel’s daughter and president of the foundation. She reports that any funds remaining in 2020 “will be distributed to the foundations of the next-generation Bechtel family members.”

Two foundations on a longer trajectory are the Searle Freedom Trust and the McCune Foundation. Like many donors before him, Dan Searle launched his foundation with a broad mission and implied perpetuity. In the early 1990s, however, he began to reconsider both the direction and the timetable of his philanthropy. He hired Kim Dennis, the founding president of The Philanthropy Roundtable who had worked at the Olin Foundation while it spent down, and with her help committed his donor intent to paper in a six-page document. By supporting research and education on public policies, Searle sought to “foster those underlying values and attitudes that enable the free market and democratic systems to both function and flourish.” And by stipulating a limited life for his organization, he wrote, “I seek to ensure that the foundation will always remain in the hands of people who understand my intentions and are committed to carrying out the foundation’s mission.”

Dennis encouraged Searle to move money through the foundation more rapidly than he had originally intended so that staff would have personal knowledge of the decisions he would make. Bigger grants occasioned more thoughtful reflection from the donor, and gave him the opportunity to clarify his objectives to those who would continue distributing his money after his death in 2007. “A big part of my job was worrying what could go wrong” between the end of direct donor involvement and the closing of the fund in 2025.

“We will always honor Dan’s intent, though with a dash of creativity,” Dennis says. During the spend-out phase, she predicts, if the political environment is one in which the foundation can make progress, more money will go to immediate research. In a less friendly context, the foundation will look at more long-term investments. (For more on Dennis’s work with the Searle Freedom Trust, see “The Art of Public-Policy Philanthropy,” Part I.)

The McCune Foundation of Pittsburgh is spending down by narrowing its focus. Charles McCune ran the Union National Bank and gave generously to charity during his lifetime. In 1979 his will created his ­foundation with a limited life of 50 years. The broad mission: “to advance the quality of life in southwestern Pennsylvania by fostering community vitality and economic growth.”

As frequently occurs in family foundations, McCune experienced “geographic creep” as family members moved to new regions. With its 2029 termination date in mind, the foundation has now begun shrinking the geographic area of its grantmaking. For the ten third-generation McCune families who no longer live in Pennsylvania, $80 million has been shifted to donor-advised funds at their chosen community foundations. Staff and board then whittled a grantee list of 945 organizations to under 200 “targets of opportunity” for spend-down grants. A handful of “big idea” grants have been awarded to long-term grantees for major projects like support of early-stage technology companies in Pittsburgh, and community-development projects in low-income neighborhoods.

What staff learn from these “big idea” gifts will determine how grantmaking proceeds after 2016. From the short list of 200 grantees, suggests executive director Hank Beukema, McCune may be able to strengthen 50 or 60 of them well into the future. The board will direct $60 million to building up rural community foundations in the locality, for instance, but will also look for small organizations it can buttress.

There is no shortage of limited-life foundations that today’s donors can observe as guides to the sunsetting process. Organizations like the Andrea and Charles Bronfman Philanthropies (2016) and the AVI CHAI Foundation (2020) are among those listed by Duke researchers when they compiled, in 2012, a roster of 74 major foundations committed to time-limiting their work (see cspcs.sanford.duke.edu/time-limited-­philanthropy/time-limited-foundations). The newly funded Ralph Wilson Foundation has just announced it will operate until 2035. At the Bill & Melinda Gates Foundation, the 20-year spend-down begins at the death of Bill and Melinda Gates.

Whether they want to magnify their impact, prevent mission drift, see results with their own eyes, avoid bureaucracy, or eliminate family conflict—or perhaps all of the above—donors have many motives for pushing their gifts over a limited, immediate period. “You can become musty if you keep doing everything as you always did,” Kim Dennis observes. “The lesson for other donors is clear: sharpen your mission and plan to sunset.” Otherwise, she warns, “be content knowing that things will change.”