Are Canadian foundations afraid of death?

This is the first story in the Future of Good editorial fellowship covering the social impact world’s rapidly changing funding models, supported by Community Foundations of Canada and United Way Centraide Canada. 

In 2016, the pitfalls of the ‘perpetual’ family foundation hit Kerny Korchinski like a wind storm ripping across the prairies. 

In November of that year, Korchinski and his daughter Corinne Korchinski-Fisher were at a Philanthropic Foundations of Canada conference in Vancouver. It was time for break-out sessions, and Korchinski, a polo-shirt-wearing, white haired gentleman in his seventies, opted for a session about “spending down” — the practice of distributing all of a foundation’s money to charity and closing up shop for good. It wasn’t an approach he knew much about. 

The session featured a speaker from a member of one of Canada’s wealthiest families, whose ancestor had earned considerable wealth through his businesses and had donated a sizable chunk into a perpetuity-oriented family foundation. 

“One [member] of the third generation spoke and said that by going into perpetuity it literally destroyed the family communication, the culture — and I got thinking about that,” Korchinski says, over a Zoom call. 

“There was no collaboration amongst the family members any longer. They were all doing their own thing…The idea of saddling the next generation with [the benefactor’s] philanthropic intentions didn’t sit right [with me].” 

Four years earlier, Korchinski had established his own family foundation, which in 2019, held assets of about $7 million. At the time, the creation of the Korchinski Family Foundation was prompted by the sale of the family businesses (four Peterbilt truck dealerships), a desire to give back to communities that had been good to them and a recognition of the tax benefits of establishing a foundation. (Donors can significantly reduce their tax bill on the sale of a large asset, like a business, by establishing a foundation).

After the conference, Korchinski and his daughter, the executive director of the foundation, started doing some research about their options. Through their digging, they came to recognize the considerable community impact that could come from spending down and from distributing well beyond the federally mandated 3.5 percent annual disbursement. They also came to believe that doing so would be a better choice for their family — one that could save them from future strife. 

Amongst wealthy Canadian donors, they’re not alone in coming to this conclusion. Over the last several decades, other major Canadian philanthropists have been quietly deciding to spend-down too. 

And as the COVID-19 pandemic exacerbates inequality, several non-profit and grassroots leaders are calling on other donors to adopt this practice — and crucially, to spend-down using an ‘equity-orientation,’ by putting money into the hands of under-served communities. Specifically, Indigenous communities have called for ‘land back’ — a practice that would see a dramatic transfer of wealth from settlers to Indigenous people; and climate justice movements have called for a ‘just transition’ by resourcing Black, Indigenous and people of colour-led movements to build a green economy. 

But analysis suggests that a systemic orientation toward perpetuity in the philanthropic sector in Canada may be preventing other philanthropists from heeding these calls. 

Perpetuity is the norm

One morning before work, several years ago, I got my first taste of perpetuity-oriented philanthropy in a brightly lit diner in downtown Toronto. I was having breakfast with a representative of the Toronto Foundation. At the time, I was thinking about my own giving and a friend suggested that I learn more about donor advised funds (DAFs) — a sort of individual, ‘mini foundation’ that’s often held with a community foundation. 

Over coffee, the foundation staffer explained the DAF model: My donation would become its own fund and would be invested into the foundation’s endowment. This would allow my donation to grow over time, even as I donated annually to charity. 

The whole thing seemed like magic. 

For me, donating had only ever been transactional — I would pick a charity and I would send some money. How was it possible, I wondered, for a donation to grow over time? 

It’s possible, the staffer explained patiently, because DAFs are invested in a foundation’s endowment — and because the endowment often earns interest at a rate that eclipses a donor’s annual disbursement to charity. This would allow me to ‘stretch’ the impact of my donation well into the future. 

Though no formal studies have assessed the rate of spend-down philanthropy in Canada, anecdotal data suggests that ‘forever foundations’ remain the norm amongst benefactors who establish foundations or donor advised funds. 

Amongst the 130-odd members of Philanthropic Foundations of Canada, an association for private foundations, for instance, all but three members are oriented toward perpetuity — just two percent have explicit ‘spend-down’ mandates. 

In an interview, PFC president Jean-Marc Mangin suggests however, that the sample size of the current PFC membership may not fully capture the broader trends of the sector with respect to perpetuity. 

He pointed to recent research by John Hallward, president of Giv3, who found that in 2018, 19 percent of the top 750 largest private foundations in Canada distributed more than 10 percent of their assets. If that kind of spending holds, Mangin says, most of these foundations would close up shop within a decade, as interest earned on their capital wouldn’t make up for their annual disbursement. (Hallward, however, cautions against such a reading, noting that foundations can add additional capital to prolong life or could have had one year of high-spending that isn’t representative of annual trends). 

In the world of donor advised funds, spending down seems similarly rare. To assess the approximate rate of spend-downs amongst DAF holders, Future of Good contacted ten public and community foundations across the country, eight of whom provided high-level data. 

Five of these foundations had little experience with spend-down DAFs at all. 

“We don’t actually have much/if any history with donors who have requested that we sunset or spend down their funds,” says Claire DeVeale-Blane, director of communications at the Toronto Foundation, by email. The same holds true at the community foundations in Ottawa, Calgary, Vancouver and Edmonton, where spend-down DAFs are rare. 

And for those that do have some spend-down DAFs, perpetuity-oriented DAFs remain the significant majority. At the MakeWay Foundation and the Aqueduct Foundation, for instance, DAF spend-down rates are approximately 30 percent, with ‘sunsets’ happening either during the donor’s life, or soon following, as outlined by their will. 

This data suggests that the ‘forever fund’ seems alive and well in Canada. And as the COVID-19 crisis widens the gap between the rich and poor, non-profit and grassroots leaders are increasingly calling on foundations and DAF holders to buck this trend.

Non-profit and grassroots leaders call for philanthropic sunsetting

“It makes no sense that these assets can exist in perpetuity. I think it’s hubris for private foundations to think they have a right to these assets,” says Yonis Hassan, co-founder and CEO of the Justice Fund, a Toronto-based non-profit that supports communities in conflict with the law. 

“Philanthropy is not a right, it’s a privilege,” he says, evoking the public-subsidizing of private philanthropy through tax deductions on donations. “You’ve been given the privilege of assigning when and where to allocate those funds…Is it so much to ask that these assets actually be spent within our generation — within a lifetime? Why pass the bucket off to another generation?” 

Launched earlier this year, the Justice Fund has prioritized reforming philanthropy as key to its mission, pushing for increased funding of grassroots initiatives and trust-based philanthropy. 

In March, to advance this work, Hassan published an op-ed advocating for six system-wide philanthropic changes. Among them, a call for the federal government to introduce mandatory spend-down requirements for all new and existing foundations. “I have zero faith in philanthropic foundations’ ability to self-regulate or reform. So it’s incumbent upon the Federal Government of Canada to do it for us,” he says. 

Across the country, Sheila Muxlow, development director for Indigenous Climate Action (ICA), echoes Hassan’s call for an increase in the number of spend-down foundations and funds. 

“With the climate crisis, we are at such a precipice,” says Muxlow. “We need transformative change now.” In 2019, the United Nations warned that humanity has just 11 years to stop irreversible damage from climate change. In the same year, ICA, one of the most prominent grassroots, Indigenous-led climate justice organizations, had a budget of just $625,000 and a staff of 10.

“[The] inequity of funding that has gone to Indigenous-led and BIPOC-led initiatives is vast,” they say. And the data bears this out. A 2018 Canada Helps report found, for instance, that Indigenous charities received just 1 percent of all donations in Canada processed by the giving platform. 

“Foundations who have that ability to spend down could use those assets to address that gap quickly. Doing so would “resource organizations like ICA to be able to play at full capacity in the field,” they say. 

For Muxlow, spending down is an important tool to address the climate crisis because it would unlock additional funds to resource Black, Indigenous, and People of Colour (BIPOC)-led climate solutions — the very people, they suggest, with the know-how, lived experience and relationships to solve the challenges for good. Moreover, they say, it’d flow capital on a timescale that matches the urgency of the crisis.

In response to these calls from grassroots and non-profit leaders (and admittedly, for their own personal reasons, too) some philanthropists are doing just that — bucking the trend of perpetuity in favour of spending down. 

Shifting away from a “monopoly” over decision-making

Maya Waitzer is a 26-year old therapist in-training. We speak by telephone on a steamy summer afternoon, about the decision that she and her four siblings made to spend down their family’s $280,000 donor advised fund within six years. (Full disclosure: Maya and her sibling, Jon, another trustee, are both friends of mine.) 

“[We] recognized that we didn’t want to have a monopoly over the decision-making for this money — money that had been absolved of tax and gone to a sheltered place,” she says. “We wanted to release it back into the economy where it could do good work.” 

For the Waitzers, the decision to spend down was both political and practical — a common feature amongst many donors who opt to sunset. 

From a political standpoint, the Waitzers approached their redistribution using a ‘just transition’ lens — a set of principles that focuses on addressing the climate crisis by shifting from an extractive economy to a regenerative one. This frame helped to emphasize the timeliness of spending down. 

From a practical standpoint too, spending down made sense for the trustees, Waitzer says. “There were a few years where it was kind of just the thing nagging on our conscience, like, ‘Oh, there’s a big pile of money that we are not good at making decisions about because it requires five people to come together who don’t live in the same city.”

Since deciding to spend down, the five trustees have sketched a plan to provide multi-year general operating funds to seven organizations. Four of these organizations, including Freedom School and the Ontario Youth Indigenous Partnership Project were projects selected by the Waitzers. An additional three were projects selected by the first group of grantees — a practice called ‘flow funding’ — which was another way that the group operationalized their desire to share decision-making power. 

And while Ed Waitzer, a retired lawyer and the fund’s benefactor, wasn’t involved in the decision to spend down, it sat well with him.  

Waitzer was a long-time board member with the Toronto Foundation, where he advocated for increasing the disbursement quota and encouraging spend-downs — both based on his recognition of the urgency of community needs and his perspective on taxpayer subsidies for private philanthropy. 

“The discussions I’ve had with other trustees or directors of charitable organizations is, you know, ‘Tell me how capital accumulation within the charitable organization or foundation advances our mission, and how it advances any social impact objectives that we have?’” he says, on a Zoom call from his home. 

“And I think the answer is often ‘Well, it doesn’t, but it advances family objectives.’ It’s just a family foundation trying to keep the family together — and this is one way of trying to preserve family wealth,” he says. “To which my answer would be ‘Well, those objectives are fine. But there’s no reason for those objectives to be publicly subsidized.”

Across Canada, over the past several decades, the Waitzers are far from the only philanthropists who have decided to sunset. 

In 2012, for instance, former PFC member, the Endswell Foundation completed its sunset, redistributing over $25 million within two decades, with the bulk of donations funding environmental projects in British Columbia. And in 2018, the Toronto-based Salamander Foundation also wound down, distributing millions to major social and educational institutions, such as the Royal Ontario Museum, United Way Greater Toronto and Western University.

And for those who have sunset, or who are mid-way along, the community impact resulting out of the spend-down process is enough to make them want to encourage others to adopt the approach. 

Driving impact through winding down

In 1998, Carol Newell, the benefactor of the Endswell Foundation, decided to double the size of the foundation’s grants to existing grantees for a four-year period. The decision was based on her fear of a ‘Y2K’ market crash — and her dread about the prospect of losing foundation dollars due to fickle money markets. And while the choice was practical, the impact of the decision on foundation grantees prompted her to spend down for good. 

“The lesson that I learned was — it really exponentially boosted the organizations we got behind,” she says, over Zoom. “The organizations were encouraged by this, first off — just encouraged with the support.” 

And beyond the emotional boost, they performed better too. They had more money to hire staff, and didn’t need to focus so much attention on fundraising — all of which helped them to “surge forward,” she says. 

In 2002, based on the success of doubling the grants, Newell set in motion a ten-year spend-down, a choice that dramatically increased the capacity of B.C.-based environmental groups in the early 2000s in their work to “preserve wild places” for future generations.

In the U.S. too, spend-down philanthropy has had a considerable impact. In the 1990s, for instance, as part of a foundation spend-down, Irene and Aaron Diamond donated $75 million to AIDS research — money that funded a breakthrough in life-saving antiretroviral therapy, impacting thousands in the intervening decades.  

Back across the border, in Toronto, the benefits of spending down are similarly obvious to the granting director of a spend-down foundation with assets of over $80 million.

“Maybe our assets aren’t always as big as others, compared to say the McConnell [Foundation’s] and the Chagnon [Foundation’s], but on a capital out the door each year [basis], we’re significantly higher,” he says. 

Four years ago, the foundation’s wealthy benefactor died, leaving instructions for the establishment of a foundation to be spent down within fifteen years of his passing. In helping to design the foundation’s granting approach, the director of granting quickly realized that by spending down, the foundation could ‘punch above its weight’ — by being one of the largest grantors in the country for a decade, despite holding far fewer assets than the largest Canadian foundations.

He also realized that this created considerable opportunities for “crowding in” additional capital from other donors by using matching funds as a carrot. Earlier this year, this strategy paid off. 

“There was a sizable and very important area of southern Ontario that was hitting the market for sale, and one of our partners wanted to ensure this landscape did not change given its prime location,” he says. The 500+ acre parcel of land is home to several at-risk species, wetlands and native forest — each at considerable risk should the land fall into developer’s hands. 

“[Our partner was] able to secure some funds, but had a shortfall, and we stepped in with a pool of funds, but provided them on a matching basis,” he explains, in a follow-up email.   

Matching funds are those that are offered to a charity, should they be able to secure an additional target amount from other donors. This approach tugs on a donor’s desire to maximize the impact of their capital — by suggesting to them that they can effectively double their donation by unlocking the matching pool. 

“We just got the good news,” the director says. The charity was able to raise enough capital from private donors to trigger the foundation’s ‘matching’ donation. As a result, the foundation’s partner will soon purchase and preserve the land. 

And while matching funds are a tool available to all donors — perpetuity and spend-down-oriented alike — the difference, perhaps, is in the amount of capital that can be leveraged by spend-down grantors, given their much higher annual capacity for disbursement — and the sizable capital from large funders that it’s able to attract. This gives the foundation the capacity to “size up” during its abridged lifetime. 

Yet despite the draws of spending down, analysis shows that structural and attitudinal barriers in the philanthropic sector may prevent other Canadian foundations and DAFs from sunsetting. 

“Built on the idea of endowed funds” 

I’m three weeks into reporting this story and I’m trying to make sense of the options provided by community and public foundations to support their donors to spend down. The trouble is —  each institution uses a slightly different vocabulary to define their DAF offerings: endowment funds, flow-through funds, term funds, transferable funds, legacy funds, permanent funds — to name a few. 

While each of these funds share a common feature of allowing their benefactor to direct the fund’s interest to beneficiary charities, not all permit them to spend down their capital. 

At the Vancouver Foundation, for instance, only donors who establish a DAF with starting assets of over $100,000 are able to establish a ‘transferable fund’ — a fund that gives the donor the option of spending down their principal. Any less than that and donors must create an ‘endowment fund’ where the capital is endowed in perpetuity, leveraging just interest for grants. 

Similar roadblocks exist across the country. At the Edmonton Community Foundation, for instance, a donor is only able to set up a ‘capital’ DAF (which can be spent down) if they also establish an endowment DAF (where capital lasts in perpetuity). 

And even at those institutions that do allow for spend-down DAFs, foundation staff often “recommend” that these DAFs have ‘endowment terms’ of five or ten years. This strategy is encouraged in order to cushion against year-to-year market volatility that could reduce the size of the total fund available for donation.   

“We recommend a minimum endowment term of 10 years so that it’s a stable market. That is where we perform at our highest, that’s where our returns are their best…but we will work with the donor and absolutely create a structure that works for them,” says Janeen Webb, vice president of donor engagement, of term funds at the Calgary Foundation.   

These approaches, though antithetical to spending down, were part of the founding design of many community foundations. The Calgary Foundation, for instance, “was built on the idea of endowed funds…” says Webb. 

Perpetuity vs. spend-down 

Proponents of perpetuity-oriented DAFs and foundations argue that this model provides numerous benefits. 

Principal among them, proponents suggest, perpetuity-oriented funds provide donors with an essential opportunity to provide sustained, long-term funding to a select group of charities. This helps to eliminate the worry that their donee charities might fold without their annual support. 

“Such endowments have the potential of providing predictable funding, ‘breathing room,’ for the recipient charities,” wrote Kathy Hawkesworth, a philanthropic advisor at the Edmonton Community Foundation, in a 2017 article in the Philanthropist. “Knowing that particular endowment grants will appear year-over-year allows charities to better strategically budget and plan.” 

Advocates also argue that these vehicles are appealing to donors because perpetuity is closely tied to legacy. (This is less a direct ‘benefit’ of the perpetual structure and more a carrot which helps to incentivize greater philanthropic largesse, which could benefit the community indirectly). Many benefactors establish a DAF or foundation through their will. The structure provides the chance for donors to contribute to the community long after they’ve died — and to be remembered for it. 

For donors oriented in this manner, we need look no further than the names engraved Canadian universities, colleges and hospital wings. At Concordia University, for example, you’ll find the J. W. McConnell Engineering Building, named after John Wilson McConnell, whose private foundation was created in 1937, and today holds assets of over $650 million.

And still others who see the benefits of perpetuity argue that systemic change takes time. Summarizing the perspective of perpetuity-oriented PFC members, John-Marc Mangin says that some foundations feel that they need to be around for the “long-term” in order to make significant public policy change. 

“Look at the work on childcare from the 1980s and 90s — the same foundations [that were involved then] are involved today — and you see the results in the budget.” (Mangin, for his part, says that PFC encourages a diversity of philanthropic approaches, supporting both spend-down and perpetuity-oriented foundations alike). 

But these arguments don’t sway spend-down advocates. 

Yonis Hassan disagrees with Hawkesworth’s argument — that foundations should orient toward providing long-term funding to a group of charities. And further believes that encouraging this mentality can skew donor’s perception of the role they should play. 

“It is incumbent upon our governments — federal, provincial, municipal — to provide the adequate social safety nets for community health — for communities to not only thrive, but to live in dignity. It’s not the responsibility of private foundations.” 

For Hassan, the role of private philanthropy is to “fund innovation,” not core social services. “And if you’re not doing that, then you’re part of the problem,” he says. 

And finally, Carol Newell, argues for the benefits of spending-down for its capacity to nip social problems in the bud. 

“Problems will grow exponentially in comparison to the amount of money that you’ll be able to [generate],” she says, paraphrasing an idea of American philanthropic advisor Claude Rosenberg. For Newell, this idea encouraged her to spend down her foundation, rather than to hold onto funds in order to be around for the long-term. 

And while much of the Canadian philanthropic sector orients toward perpetuity, some community and public foundations are actively trying to encourage donors to spend down — and they’re seeing promising results. 

Driving the demand for sunsets

Since 2006, Malcolm Burrows, head of philanthropic advisory for Scotia Wealth Management, has made spend-down DAFs a “fundamental part” of the mission for the Aqueduct Foundation, Scotia’s related foundation. “For us, it’s not about trying to capture money,” he says, by Zoom from his kitchen. “It’s about getting money out.” 

This approach has resulted in educating donors about spend-down DAFs, both through promoting term DAFs in foundation materials and through conversations between donors and foundation estate planners.

“I’d say that a significant percentage of our donors are uncomfortable with the concept of perpetuity (‘it’s too long”; “it’s not about me”; “I want to have more impact”) and wish to get funds out into the community. I suspect we uncover that discomfort because we always have the conversation about granting flexibility and spend-down,” he writes, in a follow-up email.     

As a result of this concerted effort, 30 percent of the foundation’s 800 DAFs have an explicit spend-down mandate, says Burrows, with many spending down during the donor’s lifetime. In addition, the foundation has about 500 “legacy funds” which are funded through a donor’s will. Fifty-three percent of these funds have spend-down or “immediately granting mandates,” he says. 

These combined approaches have allowed the foundation to redistribute $495 million since launch, with millions flowing to hospitals, schools and charities. (Notably, the Aqueduct does still retain considerable capital. The foundation has accumulated assets of $600 million, which includes capital from many funds with perpetual mandates. And the bulk of DAF dollars have been directed toward larger charities — not the grassroots, BIPOC-led initiatives Muxlow speaks of). But still, for spend-down advocates, this example demonstrates progress. 

And new global data suggests that the spend-down trend may be picking up steam. 

In 2020, research conducted by Rockefeller Philanthropy Advisors showed a dramatic global uptick in donor’s’ intentions to spend down. Of the 150-odd philanthropic institutions surveyed that were established in the 2010s, nearly half were founded as time-limited or spend-down — up nearly 30 percent from three decades prior. 

Some Canadian DAF advisors too have seen an uptick in donor’s interests in spend-down DAFs over the past year in response to COVID-19 pandemic.  

“[This year] was the first year that we saw a dramatic increase in the number of [and] creation of flow-through funds,” said Calgary Foundation’s Janeen Webb. “[And] we had many more inquiries in this past year about spend-down donor advised funds that we have had previously.”

Leaving a different sort of legacy

Back in Saskatoon, Kerny Korchinski and his daughter, Corinne, would be thrilled to see more spend-downs, believing Canada’s charitable sector could benefit from an infusion of new cash — and that Canada’s philanthropic class could benefit from the shift too.

As we wrap up our Zoom call, I ask Korchinski about his legacy — and why the draw of the perpetual foundation doesn’t hook him like it does some others. 

“I don’t need a monument there with my name on it. In fact, I don’t want a monument there with my name on it,” he says. “The selfish side of doing this is I get to see the good that it does. And boy, I don’t care — you cannot buy that with money.”

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