An endowment is a donation of money or property to a non-profit organization, which uses the resulting investment income for a specific purpose. "Endowment" can also refer to the total of a non-profit institution's investable assets, also known as "principal" or "corpus," which is meant to be used for operations or programs that are consistent with the wishes of the donor. Most endowments are designed to keep the principal amount intact while using the investment income for charitable efforts.
There are four different types of endowments: unrestricted, term, quasi, and restricted.
- Term endowments usually stipulate that only after a period of time or a certain event can the principal be expended.
- Unrestricted endowments assets that can be spent, saved, invested and distributed at the discretion of the institution receiving the gift.
- A quasi-endowment is a donation by an individual or institution who give the gift with the intent of having that fund serve a specific purpose. The principal is typically retained while the earnings are expended or distributed per specifications of the donor. These endowments are usually started by the institutions that benefit from them via internal transfers or by using unrestricted endowments already given to the intuition.
- Restricted endowments have their principal held in perpetuity, while the earnings from the earnings from the invested assets are expended per the donor’s specification.
Creating an endowment may be an important strategy to set aside funds for the future and can be a hallmark of financial sustainability. However, creating an endowment is not the right approach for every non-profit, so it is important to understand what the advantages may be, and also what the administrative and fiduciary requirements are in order to properly maintain an endowment over time. The Hodge Group will work with your organization to help create this endowment strategy with you.