Families Wrestle With Closing Foundations

By Sally Beatty Wealthy families are setting up new philanthropic foundations in increasing numbers, but they are also shutting them down at an accelerating pace. Some of the biggest names in philanthropy are backing the idea of setting a time limit on their giving: The Bill & Melinda Gates Foundation announced in December it will spend its entire endowment — more than $32 billion — within 50 years of the death of the last of its three current trustees, then close its doors. Other families, too, are putting an expiration date on their foundations because they believe they can do more good by spending a lot of money over a short period of time rather than doling out the funds over decades, as some well-known groups such as the Rockefeller and Ford foundations have long done. Some foundations are deciding to close after family members squabble over how to parcel out the cash, often after the death of the founder. Other families worry about the corrosive effects of money on future generations, even if it is held in a foundation. Another reason is cited by the Jacobs Family Foundation in San Diego: concern that successive generations won’t share the founders’ political beliefs. Philanthropists closed 842 family foundations in 2005, the latest year for which figures are available, up 55% from 1999, according to the New York-based Foundation Center, which tracks philanthropy trends. At the same time, the number of foundations has soared to more than 71,000 currently from about 25,000 in 1984, according to the Foundation Center. But families with foundations that are approaching the end of their lives — and those who have recently shut them down — say it can be an emotionally draining experience. One concern is to avoid leaving in a lurch the charities that have long counted on their largesse. Another is to help foundation officials and staffers find new jobs. In January, trustees for the Janirve Foundation in Florida reached an agreement with the state attorney general granting a three-year extension to a 2009 deadline requiring the foundation to close, while abandoning an effort to keep it open in perpetuity. The foundation’s founder, the late Irving Reuter, had put his shutdown wishes in writing, but trustees worried about the impact on the small charities that the foundation — which focuses on causes in Asheville, N.C. — has long supported. The decision has stirred anxiety in Asheville. “It’s going to be very difficult to replace the funding from Janirve,” says Lew Kraus, executive director of the Asheville Area Habitat for Humanity, which received close to $1 million from the foundation over the past 20 years. A commitment to build 80 houses over the next few years will be affected, he says. “Without Janirve around, it’s going to be a stretch.” Another concern is who will be around to turn out the lights. When the late Joseph Jacobs and his wife, Violet, 91 years old, who made their money in engineering, set up the Jacobs Family Foundation in 1988, they decided it would close within a generation so as not to outlive their children. The foundation, with current assets of about $100 million, funds job creation and community-development projects. “My father didn’t want to create an institution that would lose touch with his conservative values,” says daughter Valerie Hapke. But Mr. Jacobs’s wishes left his heirs in a bind. His three daughters will be about 80 years old when the foundation is expected to close, sometime around 2030, and some family members worried they may be too old to engage in the arduous shutdown process. “How do you go out of business when there is no one left?” wonders foundation Chairman Norman Hapke, Valerie’s husband. The family resolved the dilemma by agreeing to let the Jacobses’ grandchildren close up shop. For philanthropists, closing a foundation requires a dramatic change in mindset, a switch from husbanding resources to suddenly giving them away. To remain in business in perpetuity, most foundations spend about 5% of assets each year, the minimum required by the IRS to retain their tax-exempt status. To terminate a foundation, all assets must be dispersed, usually over a matter of months or years, depending on the timetable. The trick, say foundation officials, is to do it without making gifts that are too large for charities to spend wisely. To cushion the blow to charities it supports, the $4 billion Atlantic Philanthropies, which plans to stop making grants in 10 years, works closely with grantees and makes extra-large gifts. “We have known they were sunsetting for some time, and there is such a long lead time that it doesn’t feel jarring,” says Marc Freedman, chief executive of Civic Ventures, a San Francisco nonprofit group that has received roughly $28 million in cash and pledges from Atlantic since 2002. Among other things, Civic Ventures has used Atlantic funds to launch programs aimed at encouraging older Americans to get involved in civic activities. Still, staff morale suffered at Atlantic, a campaigner for human rights and the aging founded by Charles F. Feeney, after it reorganized operations as part of the sunset plan, say people at the foundation. The New York-based foundation has since stepped up its communication with staff, including regular meetings, career counseling and enhanced benefits for older employees who are likely to have a harder time finding new work when the foundation closes. Some foundations close, only to reopen under a new mission. The Dibner Fund in Wilton, Conn., closed in December after the sudden death of David Dibner, the son of founder Bern Dibner, fueled disagreements among the younger family members, including over which causes to support. “There is a romantic notion of working together flawlessly with your siblings,” says Mark Dibner, a composer and musician and one of David Dibner’s three sons. “But that is not always the case.” With input from outside mediators, the Dibner family divided the fund’s charitable assets among four new foundations, one for each surviving member of the family and their descendants. For the Jacobs family, the decision to shut the foundation has been both liberating and challenging. Drawing on their father’s entrepreneurial values and disdain for traditional philanthropy, the family focused its resources on a high-impact, high-risk experiment in urban renewal. Their plan: to apply their roughly $100 million toward acquiring and developing 45 acres in a low-income San Diego neighborhood and then transfer ownership to local residents, who would also receive job training. The first phase of the project, which launched five years ago, is Market Creek Plaza shopping center, a brightly colored village of pueblo-style restaurants and retail shops tucked beside a dry creek bed. The center has been profitable since 2004, the foundation says. Next year, the foundation plans to break ground on 36 residential units. Also on the drawing board are a park, a community center and additional commercial development. The entire development is being managed and run by the foundation in partnership with residents, some of whom work as volunteers and others who are paid. Late last year, 419 residents bought stakes in Market Creek Plaza for a minimum of $200 apiece. Joseph Moore, a 29-year-old who purchased a stake in the development, says he was originally skeptical of the foundation’s plans but is now looking forward to the day when local residents assume responsibility for the project. A father of three, Mr. Moore recently switched from doing odd jobs to become a financial planner, a change he says was prompted in part by financial coaching he received in Jacobs foundation workshops. “They’re preparing us for the takeover and setting it up so we can sustain it,” he says.