Endowment: A Daunting Task
Whether you are a donor or a charity, setting up an endowment can be a daunting task. In order for the charity and the donor to set up an endowment that will help both parties accomplish their charitable goals, they need to counsel together. Often, the first hurtle is deciding which type of endowment best suits your charitable goals. Here is a list of the 3 types of endowments:
Also called board-designated endowment, the board oversees the operations and management of the endowment. Usually, these do not have donor-restrictions. As such, the board may have the right to spend the funds at any time.
Unlike the quasi-endowments, term endowments are donor-restricted gifts that provide funding to a specific qualified program or organization. Additionally, the endowment is managed for a specific amount of time or until a specified event happens. Depending on how the endowment is set up, the supported program or organization may be able to apply for extended funding.
Similar to term endowments, a permanent endowment is a donor-restricted gift. While this endowment is meant to provide permanent funding to a qualified organization or program, it does come with an additional requirement. With a permanent endowment, the principal is invested and maintained in perpetuity. Because of this, only the income generated may be used to support the designated qualified organization or program.
All in All
As with many planned giving gifts, an endowment can be a powerful tool for lasting change. However, because it is a complicated planned gift, setting it up incorrectly can be disastrous. In light of this, it is essential for the donor and the charity to counsel together to set up an endowment that will meet their charitable goals.
For more information, see the IRS Schedule D Instructions for the 2018 990 (nonprofit tax return) for definitions and where to find endowment information on a nonprofit’s tax return.
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