Foundations Gone Wrong

The New York Times reported on September 29 about "orphan trusts" -- charitable trusts whose sole trustees after the creators pass are either banks or lawyers. In many cases, the trusts have increased assets, decreased giving, and -- surprise, surprise -- are providing greater benefits to the trustees. More assets means more fees to the trustee and, in some cases, these foundations gave grants to organizations with which the trustees are affiliated.

The report states that many of these foundations were initially in the hands of local banks with roots in the same communities as the creators of the foundations. However after significant consolidation in the financial services industry these banks are now part of multinational corporations with no direct connection to the mission of the foundation. They tend to give the minimum required by law and bulk up fee-generating assets under management.

I'm on the board of a local non-profit in the Boston area and I know how hard it has been to find funds as industries consolidate. Large corporations tend to favor large charities. It's more efficient to give fewer, larger grants and name brands like name brands. Unfortunately, it is difficult to police the activities of these small trusts

There is a lot of great work done by smaller organizations that deserves to be funded. The $5.4 billion controlled by these orphan trusts could do a lot of good if deployed more in accordance with the way their founders acted when they were alive.

I'm not sure exactly what should be done about this. More thoughtful trust documents that give greater guidance and ensure a larger number of trustees would be a start. Sunset provisions that steer money to the organizations originally supported a certain number of years after the founders pass would be another possibility. Ideas are welcome.