The Ivey Foundation announced in 2022 that it will spend its entire $100-million portfolio in five years. The move by one of Canada’s oldest private foundations to give away all its capital was partially a response to the current climate emergency. The Ivey Foundation cited the urgent need for more climate funding in its decision to “spend-down.”
But the decision also highlights one of the fundamental questions facing Canadian family foundations: whether they should aim for perpetuity or spend-down.
How are family offices approaching the spend-down debate, and how does it play out in practice? Let’s review the context.
The challenge of ‘foundation mortality’
Many Canadian foundations aim to exist in perpetuity, but most don’t last more than a single generation. Canadian foundations frequently operate as “flow-through” entities, granting most (if not all) of their capital each year. Only a minority of Canadian foundations hold investments that grow over time and succeed across multiple generations. Foundation mortality is the norm. Canada’s foundation landscape is far younger and more fluid than many assume.
This may be because it’s tough operating a foundation for the long run. Generational succession, poor investment returns and mission drift all contribute to foundation mortality. Regulatory requirements also play an important role.
For example, Canadian foundations have clear granting requirements that make it difficult (but not impossible) to accumulate capital. In simple terms, foundations worth over $1 million must donate five per cent of their capital each year to other registered charities (called the disbursement quota, or “DQ”).
To keep growing and become perpetual, Canadian foundations must either grow their capital faster than their grants or receive more donations. And it’s precisely this accumulation of capital that is drawing the most criticism from spend-down advocates.
Impact now, or later?
Many critics of Canadian foundations argue their excess capital should be dedicated to today’s urgent needs rather than be accumulated. Some spend-down advocates view capital accumulation itself as problematic. Most, however, simply want more resources directed to the charitable sector sooner and believe the five per cent disbursement quota is just too low.
Beyond public criticism, the spend-down debate is also happening within wealthy families themselves. It’s becoming increasingly common for inheritors to question whether they deserve their fortune and to consider whether greater justice can be achieved by sharing their capital with others, including charities. Many view spending-down their family foundation as a path towards social, environmental, indigenous and economic reconciliation.
These motivations reflect a genuine desire to respond to today’s injustices. They also invite a deeper consideration of how philanthropic capital can continue to serve society when future challenges inevitably emerge.
Strategic philanthropists know that future generations will face their own challenges, ones we cannot yet comprehend. By spending-down the capital of Canadian foundations today, we may be making the charitable sector weaker in the future and less able to respond to the challenges of tomorrow.
Plus, the stable funding that perpetual foundations provide is often essential to achieving complex charitable goals.
When philanthropists think of the long term, they see many charities need more than just money to fulfill their missions. The reality is that many charitable objectives can only be achieved once ideologies and social systems evolve over time. Pouring capital into some charities today may not result in the highest impact compared with strategically investing for the long run.
Perpetual foundations that invest for the future support some of the fundamental elements of strategic philanthropy, including institutional stability, intergenerational engagement and taking a long-term view to solving complex problems.
Choosing the right path
Reconciling competing perspectives of foundation perpetuity and spend-down requires more than ideology. For families debating whether to focus their philanthropy for the long run or devote more resources directly to charities today, it’s worth considering a process-oriented approach. This is where a strong family office adds value.
Effective family office advisors can help frame philanthropic conversations among multiple generations, balancing the urgent needs of today with the next generation. They can also help philanthropists understand how the debate between perpetuity and spend-down is not a moral choice, but a strategic one.
Such strategic decisions are best approached by establishing clarity on a few fundamental considerations. To facilitate this conversation, family office professionals can help philanthropists gain greater clarity by defining:
- Their charitable mission.
- The time horizon of the problem.
- The family’s appetite for long-term stewardship.
- Practical investment policies and return expectations.
- What future generations want (or don’t want).
- Infrastructure requirements for governance and reporting.
This is where the day-to-day family office architecture that supports family meetings, investment policy statements, consolidated reporting, governance structures, grant-making policies and gift-planning become essential.
Once philanthropic strategy is defined, there are more ways family offices can clarify competing goals of perpetuity versus spend-down. Clarity of purpose sets the table for integrated approaches to philanthropy that extend beyond traditional grant-making.
For example, strategic philanthropists are increasingly using “all the tools in their toolbox” to achieve charitable goals. This means doing whatever it takes to achieve impact, whether that’s by making outright charitable gifts, aligning investments with a charitable mission, or making impact investments that often blend philanthropy with profit.
Accordingly, family foundations with invested capital should undertake investment policies that ensure mission alignment. They should also consider whether impact investments fit within their portfolio and whether to disclose their investment outcomes publicly. The implications of doing so will vary depending on specific charitable purposes, organizational capacity and the desire for personal privacy.
By encouraging open debate and operating with accountability, family offices will find that neither perpetual nor spend-down foundations are inherently superior. The question is not about whether foundations should grow or shrink, but rather, how philanthropic capital should be deployed to maximize long-term impact.
Family offices can ensure the debate about perpetuity versus spend-down avoids being framed as competing moral positions. Instead, it’s about competing tactics towards achieving charitable goals.
James Dunne leads Markdale Financial Management, a Toronto-based family office. As a personal CFO, he helps wealthy families and private foundations organize and simplify their financial lives. James loves gift planning and is a proud member of the Canadian Association of Gift Planners (CAGP).
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