Foundation Variance Power and Donor Intent
I love watching the original James Bond movies. It seemed Bond would inevitably end up escaping from the villain at least once during the film by pushing the eject button on the dash of his fabulous sports car. Dramatic, yes. Recommended for day-to-day driving situations? No. The variance power foundation boards can exercise over component funds strikes me the same way: useful in an emergency but not to be abused.
What is variance power? The Council on Foundation’s National Standards board views it as a central issue to effective long-term management of its assets. The National standards state a community foundation must retain the right to modify ANY restriction or condition on the distribution of a fund if ‘circumstances warrant.’ These circumstances include changes in the law, practicality, obsolescence, inappropriateness, or if impossible.
This critical clause is included in all fund agreements and should be carefully explained to donors. It’s crucial to explain why this clause exists: to protect the donor and the foundation from inevitable changes in technology, needs, and the law. Imagine a fund created 75 years ago to support children of telegraph workers. Would the donor want their gift to lie fallow on a foundation’s books because of changes in technology? Or would the donor want the board of that foundation to carefully and thoughtfully consider how the funds could still be used?
Foundations should approach using variance power as a last resort. In practice, I have seen it used with scholarship funds that were too narrowly focused, resulting in few or no qualified applicants. The scholarship fund was not practicable.
In another case, a designated fund supported a specific client group. Changes in the law made the fund obsolescent.
In both of these situations, the foundation board (and staff) sought to maintain donor intent by searching for alternatives and contacting the donor’s living family members to understand better the concerns that initially informed the restriction. As an additional check, the attorney who worked with the donor was contacted, providing even more context.
How do you proceed in such a situation? Thoughtfully and with full transparency to the donor and or their representatives. Some foundation executives might disagree, making the case that once the donor transfers the gift, they no longer have the right to modify the terms. And they would be right- loss of control of the asset is a component to it being tax-deductible to the donor. However, I believe donor intent has to remain central to the discussion.
In foundation work, we focus on building trusted relationships. We have an essential brand promise: donors- current, past, and future- can rely on the foundation to carry forward their hopes and dreams. We owe them the respect and the duty to evaluate every option, including transferring the fund to a better-suited entity. Pushing the eject button, significantly changing the intent of the fund, is the last resort.
In a future post, I’ll consider how to advise donors who want to narrowly define their funds’ uses and the underused foundation superfund- the field of interest fund- to build donor confidence and deepen the relationship between themselves and the foundation.