Private foundations are a growing phenomenon.  A piece by Petra Pasternak in The Recorder entitled Small Firms Find Profit in Nonprofits reported on the trend as follows:

[T]he nonprofit sector is exploding. In California, the number of private foundations more than doubled in the past decade, while the number of public charities swelled by nearly 60 percent, according to the National Center for Charitable Statistics.

And their wealth is growing. California private foundations owned about $34.9 billion in total assets in October 1997. That has since ballooned to $78.2 billion in September of this year.

Private foundations are not a big part of my practice, but they do come up with some frequency.  A basic question that sometimes gets lost in the tax arcana surrounding private foundations is "how long will this thing last?"  In the absence of an express termination date, the presumption is that the private foundation will go on in perpetuity after the client’s death.  The longer the private foundation remains in existence after the client’s death, the more likely it is that it will veer — perhaps dramatically — away from the client’s original philanthropic intent.

For example, a recent NY Times article by Stephanie Strom provides dramatic anecdotal evidence of what can go wrong when private foundations become "orphaned" because the original donor has died and there are no remaining family members to oversee distributions.  Entitled Donors Gone, Trusts Veer From Their Wishes, the investigation uncovered several examples of abuse.  Here’s an excerpt:

When Mamie Dues died in 1974, she left the fortune her husband, Cesle, had made in movie theaters in El Paso to a foundation controlled by a local bank there. The couple had no heirs and no other family.

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Three decades later, however, the foundation’s legal address is in Delaware, and a global bank, JPMorgan, manages it from an office in Dallas. While its assets have grown to almost $6 million, from $5.1 million in 2000, its giving has fallen sharply, and the local group that once decided who would receive its money no longer has a say in its operations.

Such is the fate of many “orphan” trusts and foundations around the country that have been left in the hands of lawyers or local banks that have then been swallowed up by multinational financial institutions.

With no family members to encourage gifts to the original donor’s favorite causes, the banks and lawyers have wide latitude to change the way the trusts operate and to decide which charities will receive grants.

Banks can reduce gifts and increase the foundation’s assets, thus increasing their fees. At the same time, banks and lawyers stand to gain personal influence and prestige by selecting new charities.

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An examination of several orphan trusts found these cases:

¶When large global banks take over, the number of grants often drops sharply, reducing the bank’s administrative costs. But bank fees, which are based on the amount in the trust, increase..

¶Small local grant recipients that have historically received money are either dropped in favor of larger charities or receive money far more sporadically.

¶New grant recipients sometimes include the alma maters of trustees or organizations with which they and their families have personal relationships.

¶Regulators have limited ability to identify such trusts and foundations and monitor them.

Lesson learned?

The simplest way to address the "orphan" trust problem is to define a termination date for the private foundation keyed off of the original donor’s date of death.  If the private foundation terminates within 10, 20 or even 50 years after the original donor’s date of death, it is much more likely that a family member or someone else with a personal link to the donor who shares his or her vision/values will still be around — and in charge — when the private foundation’s last charitable dollar is given away.