When Time Isn't Money: Foundation Payouts and the Time Value of Money
11 Pages Posted: 26 Sep 2003
Since their original enactment in 1969, the minimum payout rule applicable to charitable foundations has allowed foundations to distribute funds at a rate that is roughly consistent with a foundation remaining in existence in perpetuity. Most foundations make grants at the minimum rate or slightly higher. Commentators have argued that faster payout rates are socially superior to slower payout rates, and that higher payout rates should be legally mandated. One argument that has been made invokes the concepts of discounted cash flow and the time value of money in support of this argument. This article explains why those concepts are irrelevant to the foundation payout issue and begins to develop an appropriate framework for analyzing the intergenerational allocation of foundation funds.
Keywords: private foundation, payout, distributions, nonprofits, charity
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