Is your organization interested establishing an endowment at The Community Foundation? Learn more about Organization Funds at The Foundation.

Endowments –When, Why and How

Endowment Basics

(from Propel Nonprofits)

  • An endowment is a permanently restricted fund, and the law requires that the funds are managed in a way that the purchasing power of the corpus - the original investment - exists in perpetuity. The restrictions can only be placed on the gift by the donor. Depending on the donor's intent, the earnings can be used for operating expenses, programs, or to address other organizational needs.
  • A gift instrument is a document that lays out the donor's intent. It could be a letter from the donor or a fundraising appeal. It legally defines how the funds can be used and any restrictions placed on the gift.
  • A board-designated restricted fund is a quasi-endowment. Because the board has restricted these funds for the purpose of creating an endowment, they can also release the restrictions.

Advice and Insights on Establishing an Endowment

(from Propel Nonprofits)

  • Endowments are not a quick fix. They take a lot of quiet work to set up and establish before you can reap any rewards.
  • Endowments should be in sync with larger organizational plans
    • Part of your strategic and financial plans
    • Have goals in mind well before launching a campaign - why do you want an endowment?
      - General operating
      - Fund a new position or program
      - Provide a more competitive salary to retain/attract staff
  • Have all the pieces thought through and in place before launching a campaign. There are some things that you cannot change, so weigh your options. Also, you don't want to be playing catch up after the launch of a major effort.
    • Have a gift acceptance policy
    • Have an investment policy established along with a schedule for financial reporting
    • Have a spending policy established. Decide what portion of the corpus you will spend annually, while still maintaining the fund's purchasing power.
      - When possible, especially at the beginning, dedicate larger portions of the earnings to growing the fund
    • Have an investment strategy. Know where you will house the fund, who will be the financial adviser, etc. Spell everything out well in advance.
    • Be prepared to explain the concept of an endowment to potential donors. Some savvier donors will be familiar with the idea, but others may need more background.
    • Know your donors so you are able to provide them with the right kind of pitch
  • Be careful when crafting your appeal to donors because you are bound to it. Make it as broad and flexible as possible. Some have included a clause that allows them to tap into the corpus during difficult times
  • Track your endowment on a separate line or column of the balance sheet
    • This more accurately reflects what is available for operational needs
    • Track unrealized gains/losses "below the line" of the income statement to avoid showing operational surpluses and deficits influenced by the endowment's market performance
    • Showing the endowment as restricted funds better reflects your actual financial position

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Jackie Downing

Senior Director of Grantmaking and Nonprofit Support


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