The Trend Away From Perpetuities


FOR many years I have been convinced that it is wasteful to tie up money in perpetual trusts and that these trusts are often actually harmful in their influence. In May 1929, the Atlantic Monthly published an article by me on this subject. Since that time the movement away from perpetuities has made great progress. Several new trusts have been created with the stipulation that principal as well as income must be spent within a generation, trustees of existing endowments have begun to free themselves from legal restrictions as to the use of capital, and hundreds of people have written that they fully share my views as to the desirability of leaving trust funds free for use as from time to time they may be needed.

Some present readers may recall the previous article in the Atlantic. I sought first to show that perpetuities for specific objects are a mistake because times change and with them needs and circumstances change. I did not anticipate any serious opposition on that point because the evidence is too overwhelming to admit of doubt. The dead hand has been proved, time after time, to be a hindrance, if not indeed a menace, to the progress of mankind. A dozen or so instances were cited by way of proof. Hundreds might have been mentioned. I went further and criticized not only perpetual trusts for special causes but also perpetuities of any sort, however general their purposes. I made a plea for conferring upon trustees the right, if not the duty, to use a part of the principal as well as the income of funds in their care, should occasions arise which, in their judgment, warranted the additional expenditure. This is a somewhat advanced position, and I expected that it would meet opposition in many quarters.

I was pleasantly surprised by the chorus of Amens. I cannot quote them all, but a few of the letters will suggest the others.

Dr. George E. Vincent, for many years President of the Rockefeller Foundation, has probably had as much experience in the handling of large philanthropic funds as any man now living. He writes: —

June 19, 1929

Mr. Embree has told me that you would like to have me comment upon your article in the May ‘Atlantic.’ I have just reread this and here are my comments in succinct form:
1. As to specific permanent endowments, there can be no question. The case against them has been proved over and over again.
2. You are unquestionably right about permanent endowments even for philanthropic purposes with the widest discretion granted to the trustees. Power to spend not only interest but principal should be given to those who hold and administer such funds. This ought to apply also to the community trusts which are being organized in a number of our cities.

3. As to educational institutions, I have in the past been a little in doubt. It has seemed to me that the maintenance of colleges and universities ought to be ensured by having a large part of their activities cared for by permanent endowment. I have thought that such a central core of endowment might be usefully supplemented by such gifts as you have been making which give the trustees greater opportunities to deal with special emergencies and unforeseen needs. I have thought that both kinds of gifts would together make a very useful combination.
On further reflection I think I realize that this conservative feeling is traceable to my long experience in university work. It is very hard to escape the bias of any particular kind of activity. More recently I have come to the conclusion that your philosophy is essentially sound. After all, if trustees make unwise investments in funds there is no way of avoiding loss. A trust in perpetuity cannot ensure perpetuity unless there is sound and conservative business management available.
One sees in the same way that if trustees are wise they can use their wisdom in administering funds which are not legally restricted. If an institution can secure sound leadership and the right sort of trustees, it is safe under the plan you propose. Lacking these conditions, nothing can protect it against decay and disaster. So a little belatedly, but none the less heartily, I find myself in complete accord with your views on the subject of endowments in perpetuity.
Yours sincerely,

Many others wrote briefer comments in the same general vein. The following excerpts are selected almost at random from files of hundreds of letters from persons who are in positions of great responsibility in connection with endowments. Here, for example, is a note from Dr. John Grier Hibben, President of Princeton University: ‘I might add that it [the article] has been a help to me in bringing to the attention of our Finance Committee several items of our budget which should be provided for from our endowed funds, rather than from the annual income of the same.’

And this is from Thomas Cochran, of J. P. Morgan and Company, New York: ‘It [the article] has changed my conception of how I ought to handle a substantial gift that I am planning to make in the near future. Thus, I am indebted to you.’

Albert Britt, President of Knox College, says: ‘There is something extremely stimulating in your belief that each generation will and must care for its own problems. And this is more an opportunity than a burden. Conditions change so fast in our American life that we must plan broadly rather than particularly for the long future, and the more we confer upon our children the right of responsibility in solving their own problems, the more we shall benefit.’

And here speaks Mr. Lewis E. Pierson, chairman of the board of the Irving Trust Company, New York: ‘Ordinarily when we hear of a public benefaction we visualize something perfect or nearly so. You have made it clear that excellent intention is only part of a perfect gift and that it is possible for the best-intended public giving to result in harm instead of benefit.’

This comes from a fellow townsman, Mr. E. J. Buffington, the president of the Illinois Steel Company: ‘I heartily agree with your thought that the wisdom and goodness of men in the future may be relied upon for correct administration of endowment funds, and that it is wise and safe of donors to rely upon the judgment and character of trustees rather than the stipulation of fixed rules to govern in perpetuity.’

A letter from Mr. S. Stanwood Menken is especially gratifying, since it reports not only conviction but aggressive action. This distinguished member of the New York Bar writes: ‘ From my experience in drawing wills, I heartily concur in all your conclusions — so thoroughly, in fact, that I am writing to a client of mine who has just made a trust of five million dollars, sending him your pamphlet and urging him to take a lesson from your wide experienced

It would be possible to go on quoting from these letters for pages, but space forbids. These few must stand for the rest.


Even more impressive than opinions are a number of recent actions which show the trend away from perpetuities. In my previous paper in the Atlantic Monthly, it will be remembered that I called attention to the fact that in the case of the foundation which I had established I had stipulated that the entire fund must be expended, both capital and income, within a period of twenty-five years of the time of my death.

A number of the older foundations permit trustees to spend capital as well as income. This is true of all of the foundations established by Mr. Rockefeller. As a matter of fact, in addition to expending all of the income year by year, more than $100,000,000 of principal has been expended by the several Rockefeller boards. The reports of these foundations indicate that in recent years greater and greater amounts of the capital funds are being expended. Evidently the Rockefeller trustees are convinced that funds need not be preserved for possible future generations, but may best be used when promising opportunities are found for social betterment and while ideas and enthusiasm are fresh. The Commonwealth Fund, established by the late Mrs. Stephen V. Harkness, is also using principal as well as income, and the hope has been expressed that the entire fund will be expended within a generation.

Equally significant are the tendencies of boards of trustees of university endowments and other trust funds to free themselves from limitations, not only as to specific objects to which funds may be given, but also from the necessity of holding their funds in perpetuity even under the most general conditions.

The Association of Near East Colleges has set an example in raising funds for working capital rather than permanent endowment. In the recent campaign for a total of $15,000,000 of endowment for the five Near East Colleges in this association, I offered to make a contribution to Beirut University if my gift could be made a part of a temporary endowment rather than a perpetuity. The trustees of this university were attracted by the idea and immediately designated the larger part of their endowment as a temporary fund. The trustees of Robert College and Constantinople College for Women, after considering the matter, were convinced that it was wise to follow the same course of action, and use a part of the endowment each year for the present pressing needs of these colleges.

The provision in all these cases is not only that the trustees shall have the privilege of spending a part of the capital of this temporary endowment each year, but that they must set aside at least a small part of the capital either for current uses or for a reserve for future needs. The formal votes of the Board of Trustees of the American University of Beirut which embody these principles were adopted April 2, 1929, as follows: —

That every possible effort be made by the Trustees to bring up the endowment fund of the American University of Beirut to $4,500,000 by July 1st, 1929, and that $3,000,000 of this amount be placed in a temporary endowment and $1,500,000 into a permanent endowment.

That the Trustees of the University have the privilege not only of spending the income on the temporary endowment from year to year, but also may and will set aside from the principal not less than 2 per cent and not more than 5 per cent each year. These sums taken annually from the principal are to be used at the discretion of the Trustees either for the current expenses of the University for that year or placed in a reserve fund to be drawn upon from time to time for buildings, increase in salaries, pensions, development of new departments, or some unforeseen need.

It will be noticed that a part of the capital is still held as a permanent trust. This was necessary because certain bequests and donations had already been accepted as perpetuities. The larger part, however, of the funds has been placed in the temporary endowment.

The argument for not tying up funds in perpetuity is particularly strong in the case of these American-controlled institutions in foreign countries. Who can tell what the situation in the Near East will be in another hundred years, or even in twenty-five years? Political conditions may be such that it will be undesirable or even impossible for foreign institutions to continue in these countries. In such a case how unfortunate it would be to have $15,000,000 tied up in perpetual endowments which could not serve their designated objects and in consequence might be debarred from serving any useful purpose.

Somewhat similar considerations bear upon Negro colleges and universities which have been established in a number of Southern states, largely from private gifts. The changes in the condition of the Negro have been so rapid since the Civil War that it is almost impossible to follow them, let alone forecast them. Migration has removed two millions of the Negroes to the North. Meanwhile the Southern states are making increasingly liberal appropriations for the support of Negro education in the form of both public schools and Negro state colleges. In view of the swift changes in Negro conditions, it seems foolhardy to tie up in perpetuity funds for any particular Negro institution, however valuable its work may be at the moment. In fact, the crying demands of Negro schools and colleges are reasons for throwing all available resources into these present needs and leaving to coming generations the meeting of future requirements, which are certain to be different from those of to-day.

With such considerations in mind a number of Negro institutions, including Morehouse and Spelman Colleges in Atlanta and Lincoln University in Pennsylvania, have recently accepted endowment funds not as perpetuities but as working capital under essentially the same provisions as those adopted by the Near East Colleges. At the same time increasing support is being given to all Negro education on the basis of current gifts and public appropriations, as in the case of Howard University, Washington, D. C., the several state agricultural and normal colleges for Negroes, and an increasing number of private institutions.

It is also hazardous to endow in perpetuity agencies for social welfare. However fully an organization may be meeting current social needs, conditions change so rapidly that there is no guarantee that exactly the same requirements will hold for future generations. In fact, it is a certainty that these conditions will not persist. In my earlier paper I called attention to a number of examples of charities which met the needs of their time but have now ceased to have any meaning whatever. I cited the Bryan Mullanphy Fund, established in 1851 for ‘worthy and distressed travelers and emigrants passing through St. Louis to settle for a home in the West’; the endowments set up by Benjamin Franklin for the training of apprentices in Boston and for a water supply in Philadelphia; endowments for orphan asylums — an outworn form of child care. I might have mentioned the trust funds established for education in Liberia, where one hundred years ago it was expected that American Negroes would colonize in large numbers, and innumerable other examples familiar to anyone who turns the pages of social records.

Yet all of these causes seemed as enduring in their time as public-health nursing or settlement houses do in ours. As unusually fine examples of institutions which are serving current needs might be mentioned Hull House in Chicago and the Henry Street Visiting Nurse Service in New York. These agencies have been built up in response to pressing demands through the vision and resourcefulness of two remarkable women, Miss Jane Addams and Miss Lillian Wald. There can be no question about the value of their service to-day. Yet we may be certain that conditions are changing and that the acute social need of to-morrow will be different from that of to-day and Mill doubtless call for a new kind of agency to meet it. The splendid service that Hull House and Henry Street are giving under their present leaders is the strongest argument for putting all the resources they can obtain into their present activities.

An example of an important private agency which has agreed to use its funds currently rather than as a perpetual trust is the National Institute of Public Administration, an organization with headquarters in New York City which is helping to analyze and improve various functions of government. In replying to a suggestion in this connection, Raymond B. Fosdick, a trustee of the several Rockefeller boards and an active director of the National Institute, wrote as follows: —

I am delighted, too. Math your idea of setting up at least $900,000 of the $1,500,000 to be raised on the basis of a temporary endowment rather than in perpetuity. This is a forward-looking step which I hope will be widely followed in connection with other gifts and other institutions. Your continued emphasis on this matter is bound to liberalize the whole character of American philanthropy, and so far as the National Institute of Public Administration is concerned, we shall gladly adopt your condition.

For a number of years the University of Chicago has been urged not to tie up in perpetual endowments those funds which are given without restrictions, but rather to hold as large a part as possible of such resources for use at any time when needs arise. The University has recently decided to follow this course and the trustees have adopted the following vote: —

Conditions and restrictions specifically imposed by donors or testators will always be scrupulously observed by the University, but where no limitations of any character either expressed or implied have been placed upon the use of the gift, we believe that it is not only permissible but that it may be considered the definite duty of the Trustees to devote such unrestricted funds, both principal and income, to such purposes as in their judgment shall best serve the needs of the institution.

In view of the fact that the giving by the Rockefeller family and the Rockefeller boards has been conspicuous not only for its magnitude but no less for the wisdom with which the causes and institutions have been selected, it is gratifying to see that the influence of these givers is being thrown toward current use of funds and away from perpetual trusts. The elder Mr. Rockefeller continues to be a model in keeping his donations free from petty restrictions. Mr. John D. Rockefeller, Jr., has made many of his recent gifts with the formal understanding that after twenty-five years the trustees of the given institution may use the funds, both capital and income, for whatever purpose may then seem most desirable.

Two of the newest foundations have gone further than any of their predecessors in insisting upon current use of funds.

One of these is the Falk Foundation. The donor, Mr. Maurice Falk of Pittsburgh, has authorized the board to spend any or all of the fund of $10,000,000, principal as well as interest, within thirty-five years.

Another example was provided by Senator James Couzens of Michigan, who established in 1929 a fund of $10,000,000 ‘to promote the health, welfare, happiness and development of the children of Michigan primarily and elsewhere in the world.’ He has stipulated that the entire fund, capital and income, be spent within twenty-five years.

When I congratulated Senator Couzens on this act he smiled and said, ‘You see, I have gone you one better. You said that your fund must be expended within twenty-five years of some remote day when you die; I require my fund to be used up within twenty-five years of to-day.’

To make sure beyond any doubt that the instructions of Senator Couzens will be carried out, actuaries have been employed to determine just how much must be distributed each year to exhaust the funds in a quarter of a century. As a result of these computations

the trustees of this fund now know that they must spend $700,000 a year to achieve this object, and newspapers report their decision to proceed to disburse the funds at not less than this rate.

In all, $17,500,000 will be expended. The total may seem unduly high to those inexperienced in such computations. The explanation lies, of course, in the comparatively small demands on the capital in the first years. At 5 per cent, for example, the fund in its first year will yield $500,000 in interest, requiring only an additional $200,000 of the capital to meet the budget. The next year the income from interest wall be only slightly less, $490,000, requiring only $210,000 reduction in the capital. The reduction of capital, of course, will be gradually speeded up until, in the last years, the expenditure will be almost entirely from capital, and interest will become the negligible factor.

We need not become unduly alarmed at the thought that the whole fund will be exhausted. Long before that day, other donors no doubt will have provided ample sums for future work. And meanwhile a vigorous administration can be expected to accomplish more for humanity with the increased sums at its disposal than could be expected in generations of spending in smaller amounts by men unacquainted with the donor. Such trustees who have not caught the donor’s enthusiasm and his will to achieve decisive results are more than likely to take as much interest in conserving the capital as in finding the best uses for it.


These instances (practically all of them occurring within the past year or two) are remarkable evidence of the growing conviction that it is unwise to try to set up endowments in perpetuity. The fact that donors and trustees are coming to recognize the objections to perpetual trusts is encouraging evidence that the human race can learn from past experience.

As a matter of fact, it is not only unwise to create a perpetuity — it is impossible. There is evidence that the Egyptians attempted to set up perpetual trusts. In Greece and Rome endowments were apparently as common as they are to-day. All these carefully laid plans for perpetuities, needless to say, have crumbled to dust. They have succumbed to conquest, confiscation, expropriation, and the decline in the purchasing power of money, to mention only the more conspicuous causes of decay.

One of the earliest historical records of foundations, I am told, was a perpetuity set up in Greece in support of the Delphic Oracle. This endowment was established during the fifth century B.C. and entrusted to the administration of eight trustees whose successors were to be chosen under careful legal provision for all the rest of time. Does anyone to-day think that the Delphic Oracle would be worth supporting? Yet probably no one now believes in university education or public health more ardently than the Greeks only twenty-five hundred years ago believed in this Oracle. It is as impossible for us to judge the needs and wants of the future as it was for the Greeks to do so.

Perpetuity means not a thousand years or a million years, but eternity. No one in the history of the world has been able to establish a trust which has endured even for a thousand years. The word, in the sense in which it is employed by donors in making gifts or by lawyers in drafting wills, is simply the expression of a fond hope.

The very idea of a perpetual trust is strange and abnormal. It may have originated from the desire of men to gain favor in the world to come. ‘Lay up for yourselves treasures in heaven’ is a command that has been taken literally by many people, who wished to have their good deeds made a matter of perpetual record on earth and thus a source of eternal credit in Heaven. In a somewhat similar spirit the old Chaldean and Egyptian kings left wealth to colleges of priests who were to tend their tombs for all time and provide food for the departed spirits. In many countries trusts have been left to ensure perpetual prayers for the donor. There is also doubtless the desire to be remembered endlessly on earth as well as to gain favor in Heaven. Surely no one to-day would condone perpetuities established because of such purely selfish motives.

The obstructions to social progress that may come from perpetual trusts, at least as they apply to individual beneficiaries, have been recognized in law. The old common-law rule, which applies in most states of this country, prohibits the establishment of beneficiary trusts set up for more than twenty-one years beyond the life or lives of persons in being at the time the trust is created. The New York State law is even more rigid and prohibits the setting up of a personal fund to continue beyond the lives of any two designated persons living at the time of the creation of the trust.

Other legal devices have grown up to protect society from the ill-advised stipulations of donors. The principle known to lawyers as the cy-pres doctrine provides that, when an endowment can no longer be used for the specific cause designated in the will or deed of gift, the courts under certain conditions may transfer its use to other objects as nearly as possible in line with the original purpose. This principle serves as a safety valve in flagrant cases of out-moded charities. The difficulty is that very seldom is any group interested enough to take the time and trouble necessary for court action to revise the terms of the gift. In fact often the only parties directly interested are trust companies or salaried officers who are benefiting from the existing terms of the trust, however obsolete they may be. Under these conditions untold millions are tied up in the support of perfunctory services some of which actually retard progress. Instances in point are endowments of religious bodies no longer active, of orphan asylums which obstruct modem ideas of child care, and charity hospitals which, however beneficial in times past, now tend to retard the development of self-supporting organizations for medical care which offer proper compensation to the physician and self-respect to the patient.

A striking example of the inflexibility of perpetual trusts was the refusal of the courts a few years ago to allow the McKay bequest to Harvard to be used in a proposed consolidation of resources and activities of the Lawrence Scientific School and the Massachusetts Institute of Technology. Although this union was desired by the trustees of both institutions and seemed clearly to be in the public interest, the courts ruled that since funds had been given to Harvard they must forever be held and administered solely by the trustees of that specific corporation, rather than in a great coöperative effort in the Boston area. Following is an excerpt from the decision of the Massachusetts Supreme Judicial Court: —

It may be assumed also that a coöperative plan like that proposed would be advantageous to both of these great institutions by creating one school of applied science of the highest efficiency, with economy in expenditure and effort, to take the place of two competitive schools. But so far as the agreement attempts to dispose of the income of the McKay gift, the controlling question is whether it is authorized by the terms and conditions of the trust upon which the gift was made and accepted. The income of the McKay endowment must be administered according to the intention of the founder, Gordon McKay, even though it be at variance with our views of policy or expediency.

This case brought vividly before the educational world the power of the dead hand, expressed in a perpetual trust, to block change and reorganization even when these are recognized to be desirable.

The real contributions of philanthropy are not so much in money alone as in the support of new ideas or agencies which may prove to have great social value. Hospitals were built and in part endowed during the Middle Ages. The Hôtel-Dieu in Paris was founded more than a thousand years ago. St. Bartholomew’s Hospital in London recently celebrated its eight-hundredth anniversary. These institutions have been continued not because of their initial endowments, for these were insignificant. They were recognized to be meeting a human need, and this recognition has been expressed in financial support generation after generation.

The ancient seats of learning abroad and in this country similarly have been kept alive, not because of their initial endowments, but because of their continued usefulness. In 1638 John Harvard left £750 and a library of 300 volumes to the college which now bears his name. The college in New Haven was named for Governor Elihu Yale in gratitude for an endowment of a few hundred books and about £600 in cash. Can anyone pretend that these original endowments of Harvard and Yale are responsible for the continuation of these universities throughout the centuries? The funds originally contributed simply made possible the experiments. The work has continued and expanded because of its support in every generation.

It is often said that the great contribution made by Mr. and Mrs. Leland Stanford was not so much to the institution which bears the name of their son as to the University of California, which, under the stimulus of the founding of Stanford University, has received greatly increased support from the State. To-day the appropriations of the State of California to its own institutions of higher learning are each year larger than the entire initial gift for the endowment of Stanford.

Similarly Mr. Rockefeller’s gifts to the University of Chicago were valuable not only in themselves and to that university, but even more for the funds which were indirectly released for universities in neighboring states because of the high standards and leadership maintained in the Mid-West area by the University of Chicago.

Real endowments are not money, but ideas. Desirable and feasible ideas are of much more value than money, and when their usefulness has once been established they may be expected to receive ready support as long as they justify themselves. We may be confident that if a public need is clearly demonstrated, and a practicable way of meeting that need is shown, society will take care of it in the future.