In today’s rapidly changing world, where urgent needs, economic uncertainty, and a historic transfer of wealth are reshaping philanthropy, foundations are reexamining a core question: Should they exist in perpetuity or spend down their assets within a set timeframe?
This debate isn’t new, but it feels especially relevant as funders weigh their desire for a lasting legacy against the pressing challenges of our time.
Data from Exponent Philanthropy’s 2025 Foundation Operations and Management Report (FOMR) shows that most funders still lean toward perpetuity:
- 76% plan to exist in perpetuity
- 16% are undecided
- 9% plan to spend down, with an average timeline of 13 years to sunset
Family foundations and those with paid staff are significantly more likely to choose perpetuity compared to independent or all-volunteer foundations.
Why Some Funders Plan to Give Forever
Many foundations are designed to last for generations, offering stability and a sense of continuity. Funders who choose perpetuity often emphasize honoring donor wishes, building a family tradition of giving, and ensuring that philanthropic resources remain available for the long term. Here are some of the most common reasons why foundations choose to exist in perpetuity:
- Donor intent: Spending down may conflict with a founder’s original vision.
- Family legacy: Foundations unite multiple generations around shared values and giving.
- Sustained giving: Endowments provide a buffer during economic downturns.
- Long-term change: Consistent giving over decades can achieve systemic impact.
- Future inspiration: Leaving a permanent mark can motivate future donors.
Why Some Funders Choose a Limited Lifespan
Other funders believe today’s urgent issues demand decisive action. Spending down can enable larger, strategic investments, reduce burdens on grantees, and allow donors to witness the full effect of their giving. Here are some of the key reasons why foundations choose to spend down their assets:
- Mission focus: Avoids future mission drift.
- Confidence in future giving: Wealth transfers and philanthropy trends ensure future funding sources.
- Strategic grantmaking: Shifts focus from preserving an institution to maximizing impact.
- More support for grantees: Large gifts reduce nonprofits’ fundraising strain.
- Immediate impact: Ideal for causes that require urgent action.
- Deeper donor involvement: Enables donors to engage closely with their philanthropy.
- Personal fulfillment: Donors can see and celebrate their impact during their lifetime.
Once a foundation decides to spend down, the question becomes how best to do it. Here are four proven strategies to guide the process.
Four Common Strategies for Spending Out
Foundations that choose to spend out have multiple ways to align their resources with their mission and values. These strategies can be used individually or in combination to create a thoughtful plan that reflects your foundation’s goals, priorities, and vision for impact.
1. Make Larger Grants for Immediate Use
This approach builds on what many foundations already do: making grants directly to nonprofits. The difference is scale. By increasing the size and number of grants, foundations can provide nonprofits with resources to meet immediate needs, launch bold initiatives, or significantly strengthen their operations.
Foundations with clear missions often plan this type of funding over several years—five, ten, or even twenty—before closing. Others use this approach to make transformative, one-time investments in trusted grantees or critical community efforts. Grants can take two primary forms:
- Unrestricted support: Flexible funding that empowers nonprofits to decide where resources are needed most.
- Project-specific grants: Investments in defined initiatives, research, or innovative programs.
This strategy is ideal for foundations looking to make a bold statement of support and maximize immediate impact while maintaining a straightforward grantmaking process.
Tip: Be mindful of “tipping.” A very large grant can unintentionally change a nonprofit’s tax status from a public charity to a private foundation. Work with grantees and tax professionals to classify these grants correctly as “unusual grants” to avoid complications.
2. Create Long-Term Restricted Funds
Some foundations want their giving to continue beyond their own operations but without the burden of running a foundation indefinitely. Establishing a restricted fund or endowment is a way to accomplish that goal. These funds are typically managed by another organization, such as a university, nonprofit, or community foundation, and generate ongoing income for specific purposes.
Examples include:
- Scholarship funds to provide annual awards to students.
- Endowed faculty chairs to support teaching and research in perpetuity.
- Field-of-interest funds to address ongoing community needs in areas like health care, housing, or environmental protection.
- Designated funds that provide predictable support to a set list of grantees.
This strategy is ideal for foundations seeking to leave a lasting charitable legacy while stepping back from day-to-day administration. It offers financial stability for organizations and causes that may otherwise face funding challenges.
3. Establish a Donor-Advised Fund (DAF)
For donors who want to close their foundation but remain active in philanthropy, a donor-advised fund is an appealing option. A DAF is a charitable giving vehicle housed at a public charity (like a community foundation or financial institution) that allows donors or other advisors to recommend grants over time.
By transferring assets to a DAF, donors can:
- Simplify administration and compliance requirements.
- Continue giving strategically without the costs of running a private foundation.
- Maintain influence over grantmaking, often for multiple generations (though some providers limit this).
DAFs are flexible, often offering a range of services, investment options, and support for strategic giving. They’re a good choice for donors who want to stay engaged in philanthropy while reducing administrative responsibilities.
4. Combine Multiple Strategies
Many foundations choose a hybrid approach to meet multiple goals. A foundation, for example, might:
- Provide immediate-use grants to address urgent needs,
- Create an endowment to support a favorite nonprofit long-term, and
- Transfer additional funds into a DAF for future, flexible grantmaking.
This mix-and-match approach allows foundations to honor their mission while tailoring resources to the unique needs of their grantees and communities. It’s a versatile option for funders with multiple priorities—such as supporting legacy organizations, addressing pressing challenges, and simplifying future giving.
Engaging the Right People in Decision-Making
Deciding how to spend out is a significant step, and choosing the right voices to guide the process is essential. Donors, trustees, and family members may hold formal decision-making authority, while staff, grantees, and peers offer valuable perspectives. Philanthropy support organizations like Exponent Philanthropy can provide guidance, and professional advisors—attorneys, accountants, and investment experts—help navigate legal, tax, and financial complexities.
How to Navigate Foundation Closure with Confidence
Spending out is just one part of a larger journey. Foundations also need to plan for grantees, staff, and board members affected by closure; comply with detailed IRS termination rules; and handle administrative steps such as setting a closing date and archiving records.
Our Closing Shop Primer is a step-by-step guide to this process. It includes practical tools, sample letters to grantees, a detailed timeline, and expert insights to help you close your foundation with clarity, confidence, and alignment with your values.
Download the Closing Shop Primer »