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When Diana, Princess of Wales, died in 1997, mourners began leaving £10 notes among the flowers laid at Kensington Palace in London. When that cash began to accumulate, compounded with the proceeds from Elton John’s commemorative song “Goodbye England’s Rose”, a finite charitable trust was established to handle the funds. “We could have given £1m a year for a long, long time,” said Astrid Bonfield, former chief executive of the Diana, Princess of Wales Memorial Fund. But the trustees decided to take a different approach, and go for broke.
The trust, which closed in 2012, focused on refugee aid as well as campaigning for a ban on cluster munitions, an airdropped weapon of war that splits into smaller explosives. The latter cause echoed Diana’s campaign against landmines during her lifetime. The Diana fund’s targeted spend-down made it similar to ready-funded campaigns that can make a significant impact in a short period of time.
The trust’s work gave the cluster munitions cause visibility on the world stage. Legislation banning cluster munitions was signed in Norway in 2008 and was heralded as one of the most significant pieces of humanitarian legislation in a decade. “The money allowed us to do that work on the cluster munitions ban,” says Bonfield.
This mode, known informally as a “spend-out” or “spend-down” trust, in which a trust’s assets must be given away during a finite lifespan, has become a touchstone for philanthropists like Queen Elizabeth, Bill Gates and Warren Buffett.
Advocates of these trusts say they are a way to create a legacy that is potent and targeted, as well as allow donors to focus on the causes of the moment.
Chuck Feeney, the founder of Duty Free Shoppers Group, became an outspoken advocate for the philanthropic model when he said in a 2012 interview that he wanted the last cheque he wrote to bounce. Feeney’s charity, The Atlantic Philanthropies, has been giving away his multi-billion-dollar fortune to various causes for the past 30 years. It made its final grants in 2016, and by 2020 it will close its doors for ever, having spent every last cent.
For those looking to structure their own trusts, Robert Rosen, director of the Bill & Melinda Gates Foundation, advises asking some hard questions. “It is important that they think of three things together: on what areas do they want to have an impact, how do they want to go about it in terms of structure or staffing, and in what context do they want to do it — or where does it fit into their family and how deeply do they want to be engaged?” he says.
“There is a real motivation to give while living, rather than in a will after the fact when you can’t [have an] influence,” says Sarah Ridley, chief grants officer at the London Marathon Charitable Trust. Spend-out trusts suit a donor who wants to engage with a specific cause during their lifetime or measure their impact.
Modern philanthropists are not always content to leave money behind in the hope it will be put to good use. Rosen says: “The foundation has a sense of great optimism and also an impatience about solving some of the great challenges facing us today.”
The foundation is a spend-out trust, with an agreement that it will terminate 20 years after both Bill and Melinda Gates have died. Spending out was embedded in the thinking of the Gates family from early on, says Rosen, and was first announced in 2007. At that time, the spend-down was 50 years but was later changed to 20. Their timeline, pace of spending and projects are periodically revaluated, he says.
Spend-out trusts must be carefully managed to ensure donations will enable projects to keep operating long after the trust has folded. In the case of the Gates Foundation, the spend-down period is also to ensure funds do not run out unexpectedly. “The 20 years is intended to encompass the wind-down, rather than create a shock to the system,” says Rosen.
He says trusts must be wary of running down their balances too quickly, or rapid fall-offs in funding to certain projects if the well runs dry.
“Not having a ticking clock right now [on the foundation, which was founded in 2000] liberates us to work in different cycles, with a balance of short-term and long-term projects.”
Spend-out trusts incur lower overheads — for example reducing spending on permanent office space or full-time staff and investment managers — which can quickly devour the limited resources of small charitable trusts, says Jonathan Burchfield. He was chairman of the Tubney Trust, which was set up by Miles and Briony Blackwell, heirs to the Blackwell UK publishing fortune. It spent down its £70m in assets in about 10 years.
The Blackwells, says Burchfield, did not “particularly approve” of huge charities with high overheads. Deciding while they were still alive on the need for a finite lifespan ensured there would be clarity with the trustees on the charity’s mission when the founders were no longer around to guide it, he adds.
The couple gave their trustees the flexibility to spend out according to a schedule that worked for them. “We took the view as trustees that, with effect from about five years before our projected closure date, we would move all our investments into liquid assets, since we wanted certainty over how much we had to spend out,” says Burchfield. Their timing was fortunate: they fully liquidated their investments just before the 2008 financial crash.
Constant re-evaluation and refocusing is vital in a trust model that only has one shot and a finite time frame in which to get it right. The Tubney Trust focused on the environment and the welfare of farmed animals. “We are at a moment of particular environmental need,” says Ridley, who was also the executive director of the Tubney Trust. “Why invest in solving a problem 50 years from now when you know there is a crying need right now?”
Solving a problem by providing an influx of capital up front is precisely why some philanthropists are attracted to spend-out trusts — particularly for medical causes. Some argue it is better to concentrate resources on curing a contagious disease now, rather than later. Climate change, as well as ocean pollution, malaria and education also fit into this category. “Spend-outs are not used as often as they should be,” says Angela Kail, director of consulting at New Philanthropy Capital, a UK think-tank that evaluates the efficacy of charitable organisations.
“Too often trustees move towards a perpetual trust option, but there are issues that lend themselves to the spend-out approach — any area where money spent now means less money will be needed in the future,” she says.
Other spend-out trusts focus exclusively on projects that can be completed in the short term to commemorate an occasion, or a life. They can be especially potent when addressing specific, actionable causes. The Queen Elizabeth Diamond Jubilee Trust was established in 2012 to commemorate the Queen’s 60th year on the throne, with a lifespan of just eight years. The trust’s executive team decided to focus on a single cause where they felt they could make an impact within the designated time frame: preventable blindness.
The trust’s chief executive, Bonfield, says there is a clarity of mind that comes when a trust removes the need for longevity. “There is something about the energy of spend-outs that drives them,” she says. “Every day and every dollar you spend is not coming back, so you have to be forensically focused, and absolutely clear about what it is you want to achieve.” To provide security, the trust does not invest its funds but keeps them in triple-A rated banks, where the money accrues modest amounts of interest.
The Diamond Jubilee Trust is in its final year, and the final stage of its spend-down. But Bonfield says the trust is busier than ever. “It’s sprinting to the finish line,” she says. At the last Commonwealth heads of government meeting, in April 2018, it was able to use its deadline pressure to get every member to commit to supporting its eye health initiatives.
Trusts must work hard to ensure that their approach remains effective, even as the issues they work on change. Commenting on the Diana Trust, Kail of New Philanthropy Capital says: “Where they made real progress was their work on cluster munitions, but those things are easier to track progress on. In other areas, around refugees, the whole landscape changed.”
A disadvantage of spend-down trusts, says Burchfield of the Tubney Trust, “is that the world changes. What might be important to support now might not be the same in 50 years’ time.”
The model also absolves founders from the fear that their children will be burdened with a charity not of their choosing. It leaves the next generation free to decide how they want to give their own money, rather than being shackled to a parent’s legacy.
“What young people are going through will re-imagine philanthropy in ways we can’t possibly understand now,” says the Diamond Jubilee Trust’s Bonfield.
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