Endowments
The following is a list of frequently asked questions relating to the Endowments. Please click on any of the relative questions and an underlying answer will appear. If you can not find the answer you're looking for, do not hesitate to call.
- What Is The Legal Definition Of Endowment?
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There is no legal definition. The commonly accepted meaning for endowment is a fund that is kept in perpetuity to provide interest and dividend earnings for the benefit of a charitable cause.
- Should All Organizations Have An Endowment?
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No. Organizations that are formed in support of short-term causes or particular events do not need endowments. Similarly, organizations which are in financial crisis, do not have a donor base, or lack any credible record of accomplishments are unlikely candidates for an endowment.
- How Does An Endowment Fit Into An Overall Organizational Financial Plan?
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To be healthy and stable, an organization needs to meet its current operating budget without exerting 100% of its energy. In addition, an organization should have an operating reserve account which covers somewhere between half to all of its expenses in an emergency. Then, based on some fundamental criteria for definition of endowment donors, it is ready to consider endowment fund raising.
- What's The Difference Between An Endowment And Operating Reserve?
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An operating reserve is a board designated fund which may act like an endowment because an organization chooses not to touch the principal. Principal is, in fact, available to meet emergency needs should the board choose to extend it. Usually operating reserves are managed and invested by the organization’s staff and board. An endowment, on the other hand, is a fund which has a corpus the organization is not able to invade. Sometimes this can be accomplished only by placing the endowment outside the reach of the organization.
- Will Having An Endowment Conflict With Current Donor’s Giving?
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Absolutely not. In fact, the addition of an endowment effort presented to your current donors will encourage them with the foresight of an organization which is planning to stabilize its financial future. Experience demonstrates that dedicated donors do not choose among ways to support their favorite charities, but frequently participate in all of them.
- Who Gives To Endowments?
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Obviously the best candidates are current board members, committee members and donors. Approaching them for consideration of endowment giving, either current cash or planned gifts, does not annoy them and, in fact, successfully raises endowment support.
- What Happens If We Have An Emergency And Need The Endowment Money?
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In a true endowment the emergency must be solved with other financial resources. If it is a board designated endowment, there are countless historic examples of “borrowing” and other creative accounting techniques which invade principal with full intention of repaying it but which ultimately do not work.
- What Happens To Our Endowment If Our Organization Goes Out Of Existence?
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For endowments that are held and managed by boards, it is unlikely that if the organization is failing the endowment will have survived. For endowments which are inaccessible because they are held in other organizations, such as the Community Foundation, the charitable earnings will be redirected to the most nearly similar cause that can be found.
- Should We Set Up Our Own Foundation To Hold The Endowment?
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The creation of a new non-profit to hold an endowment appears to solve the problem, but in fact does not provide any greater insurance for the protection of principal than board designation. Directors of separate foundations may invade corpus when emergencies arise. In addition, the costs involved in maintaining two separate charitable organizations may erode a good portion of the earnings which would otherwise be directed toward the charitable activity.
- Is An Endowment Program The Same As A Planned Giving Program?
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Many use the terms interchangeably, but they really are two separate things. Endowment is the pot of money you build as a nest egg for your organization. Many gifts that go into the pot will be planned gifts, loosely defined as out-of-the ordinary gifts that require careful estate and financial planning on the part of the donor.