Private Foundations, Perpetual or Limited?

In the past, wealthy, philanthropic individuals have set up private foundations to last indefinitely. They wanted to establish a legacy, create long-term awareness, provide continuous funding for a charity, or continue family involvement after death. This is still the preferred time span for most private foundations, but there is a common shift to a more limited lifespan.

At the time when the foundation is formed, a clear mandate needs to be proposed stating either a limited or perpetual life so successor trustees have a set guideline to follow. The limited life foundations can be set up to end so many years from a specific date, or so many years after a founder’s date of death.

Why are the limited-life foundations becoming increasingly popular? A main reason is that it ensures adherence to the intended mission upon which it was originally founded. They can also address an urgent need of a specific charity or cause with a more direct focus. The foundation can make a greater impact during an individual’s life (while they have primary control over the foundation). It is also more economically efficient to have a limited-life. Due to decreases in the attorney, accounting, and trustee fees that would incur each year. Also, instead of forcing family members into a philanthropic role, it assumes that future generations may want to create their own foundations and support their own philanthropic missions.

For the obvious reasons mentioned, foundations are increasingly being set up as a limited-life rather than a standard perpetual life. It is a decision that needs to be made by the founder. Choosing a limited-life term rather than a perpetual term is another step in the planning process for potential foundations.