and the Law

The Rising Power

of the American Dead

by Ray D. Madoff

Yale, 208 pp., $26

I regularly attend the lunches on philanthropic issues held by the Hudson Institute’s Bradley Center. The lunches feature liberal and conservative speakers prepared to wage ideological war. But after the lunch, the would-be warriors discover that, while conservatives and liberals will always have strong disagreements on how foundations should spend their money, nearly everyone agrees on the organizational problems affecting nonprofits.

Speak to the heads of small or medium-size nonprofits and, be they liberal or conservative, they will tell you that the large foundations spend far too much money on dubious national social-engineering projects and not enough on smaller, local projects that could improve a neighborhood or community. The big foundations, they’d say, prefer older, established, and noncontroversial grantees to the young and struggling. And threaten nonprofits with increases in the excise tax foundations pay, or with an investigation by Sen. Charles Grassley (the bête noire of the philanthropic world), and you’ll find such stalwart liberals as Paul Brest of the Hewlett Foundation or Rebecca Rimel of the Pew Charitable Trusts denouncing big government’s heavy hand.

There is an increasing consensus that the perpetual and immortal foundation is no longer the best way to practice philanthropy. On the right, the classic example of a term-limited foundation is the John M. Olin Foundation, which spent itself out in 2005. As John Miller shows in his history,

A Gift of Freedom, the Olin Foundation, by deciding to spend itself out, spent four times as much on grants as it would have if it had been a perpetual foundation with a large endowment and limited grant-making.

But the left is increasingly realizing that there’s a great deal of satisfaction in putting your wealth to work while you’re alive to see the results. A recent report from the term-limited Atlantic Philanthropies tells stories of all sorts of donors, such as software entrepreneur Tim Gill and Steelcase heir John Hunting, who decided to spend their fortunes during their lifetimes. Ray D. Madoff, a Boston College law professor, has joined this increasing trend by the left to side against perpetual foundations with her new book. Immortality and the Law is about all sorts of issues that affect estates, ranging from cryonics to copyright. But it is, at its heart, a critique of the idea that donors should set up perpetual foundations.

Madoff is a writer who comes up with correct conclusions using wrongheaded premises and dubious analysis. She loves taxes so much, for example, that she actually calls the period from 1941 to 1977, when the federal estate tax was at a rate of 77 percent, “the golden age of the estate tax.” Moreover, she distrusts the fundamental principle that people who create wealth should spend money on the causes they prefer: “Decisions about how charitable dollars are spent are made by the wealthy individual instead of through the political process,” she writes. “In this way, reliance on private charity as opposed to public tax revenues further undermines the strength of the democratic form of government.”

She very reluctantly decides that the charitable deduction is good only because the deduction allows donors to act as unpaid advisers to government bureaucrats. Adapting an idea by the legal scholar Saul Levmore, she contends that philanthropy is “an efficient way for the government to get information from the populace regarding which programs it ought to support.” She offers no evidence that any government official has ever used philanthropic giving patterns as a guide to shaping public policy. When donors set up foundations, Madoff argues, donors try to shape the future with their ideas; the courts, she argues, usually act to ensure that the questionable or obsolete wishes of a donor can be preserved indefinitely. Her two major examples are the cases of the fortunes of Beryl Buck and Milton Hershey.

Beryl Buck, whose wealth came from privately held Belridge Oil, died in 1975, leaving her fortune to a trust designed (as her will stated) “in providing care for the needy in Marin County, California.” The trust was given to the San Francisco Foundation to administer. Belridge Oil was sold to Shell in 1979, making Beryl Buck’s share of the estate worth $253 million. In 1983 the San Francisco Foundation sued to alter the will so that Buck’s fortune could be used in the Bay Area instead of in wealthy Marin County. In 1986, in a titanic legal battle dubbed “the Super Bowl of probate” by the local press, the San Francisco Foundation lost. Buck’s wealth was used to create the Marin County Foundation.

But the judge in the case ruled that some of Buck’s wealth had to be used to create three national organizations: the Buck Institute for Age Research, the Beryl Buck Institute for Education, and the Marin Institute. The judge who ordered the creation of these organizations declared that 20 percent of the trust be used to create ‘major projects .  .  . of national significance and importance.’ There is no evidence that Beryl Buck was interested in influencing public policy.”

Milton Hershey said that because he had no children, “I decided to make some of the orphan boys of the United States my heirs.” In 1919 he left several thousand acres and a majority stake in the Hershey Company to the Milton Hershey School. But the dramatic growth of the Hershey Company has ensured that the school has more money than it needs to run the school, which has an endowment that rivals that of the wealthiest prep schools in the United States.

For Madoff, the Buck and Hershey cases show that courts “pay only minimal attention to current societal needs” when ruling on donor intent. But the Marin County Foundation has plenty of applicants for its grants. Courts could rightfully declare that Milton Hershey more than amply satisfied his wishes in creating his school, and that the Hershey wealth could be partially diverted to create smaller and less lavish Hershey schools in the inner cities.

The problem of donor intent comes about not because of “dead hand” control, but because of the abandonment of the principles of the foundations’ founders. With the important exception of the Barnes Foundation, these cases involve liberals seizing control of foundations created by free-market conservatives, such as Henry Ford, J. Howard Pew, John D. MacArthur, and Andrew Carnegie. By creating foundations with a strict term limit of no more than 20 years after a donor’s demise, today’s wealth creators can ensure that their fortunes can be spent on causes they prefer, rather than having people they do not know spend the money in ways they would not like.

George Eastman was the greatest American philanthropist who never set up a foundation. By the time of his death in 1932, he had given away $125 million, and had hired only one assistant to help him. When asked by a journalist in 1923 why he didn’t set up a foundation, Eastman said, “It is more fun to give money away than to will it. And that is why I give.”

Ray D. Madoff is wrong in most of her analysis of philanthropy. But she is absolutely right in her fundamental point: It is better for donors to put their charitable dollars to work now than to create perpetual foundations that may or may not help our grandchildren and great-grandchildren.

Martin Morse Wooster, senior fellow at the Capital Research Center, is the author of The Great Philanthropists and the Problem of ‘Donor Intent.’

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