Benefits of a gift for endowment

Benefits to the charity

1. Endowment funds provide financial stability

Endowment funds provide a predictable stream of income. Providing a base upon which present programs can be built, and making long-range planning possible, endowment funds protect the charity in years when other income may be reduced.

2. Encourages cash and planned gifts

Donors who have made a planned gift will often begin making cash gifts to the endowment funds. And donors making cash gifts to the endowment funds can be encouraged to make planned gifts. This is especially true if a named donor fund has already been established.

3. Encourages greater donor interest and involvement

Donors to endowment funds usually become very interested in the charity. Because their gift is an expression of an interest in the future of the charity, close relationships are often built between the charity and the donor.

4. Encourages larger gifts

Named endowment funds are a means to establish gift amounts in an indirect way. For instance, if a charity has certain ongoing needs for a specific program such as equipment for a summer camp, the charity could ask for endowed funds at various levels. An endowed gift of $20,000 could establish a permanent fund that would allow the charity to send one child to camp each year; or an endowed gift of $10,000 may establish a permanent fund to provide for boat or canoe rentals or repairs of existing equipment, etc.

Promoting endowment funds at various amounts encourages larger gifts. While donors will be challenged with specific amounts and will experience a greater sense of participation, the charity will know that its ongoing needs will be met or partially funded through the endowed fund.

5. Encourages cross-generational gifts

Named donor funds can be set up in such a way that they become ‘family’ funds. The senior generation usually establishes the fund, but each generation is encouraged to make a gift to it. The ‘ask’ is particularly powerful in the case of named endowed funds in the name of a parent. For the first generation, the ‘ask’ is to memorialize a parent, however for subsequent generations, it becomes a grandparent or a great grandparent. When establishing these funds, always state that the fund is an open fund, and that further contributions are welcomed and encouraged.

Benefits to the donor

Endowed funds foster participation and a deeper sense of satisfaction

Donors experience a deep sense of satisfaction in setting up funds in perpetuity. They realize that their gift has a lasting significance for the charity, and because it will outlive them, they take great pleasure in knowing that they have left “a mark in the sands of time.”

Issues of a gift for endowment

Issues for the charity

1. A higher percentage of designated gifts rather than unrestricted gifts

Donors to endowment funds often wish to designate their gift to a program or area of the charity in which they are interested. This may diminish the amount of unrestricted funds available thereby making it difficult for the charity to meet current or emerging needs.

2. Policy and terms of reference

As endowed gifts are given in perpetuity, the charity must thoughtfully establish policies and procedures, and determine which of its programs are suitable for funding by a permanent fund. The level for gifts must be set, and a minimum amount to establish a named donor fund should be determined at the very beginning of the endowment program.

Issues for the donor

1. Named donor funds require substantial capital

Usually there is a minimum amount required to establish a named donor fund. The most common amount chosen is $10,000, with $25,000 and $50,000 becoming increasingly popular minimums. Anything less becomes too expensive to maintain.

2. Long-term stability and long-term need

Donors to endowment funds need to determine if the charity requesting endowment gifts is stable enough to be operating over the long term. Donors need to think in terms of 25 to 100 years in the future. If the charity is not financially sound and not well managed, there is no guarantee that the donor’s wishes can be fulfilled.

Donors to endowment funds should always take into consideration the fact that in the future there may no longer be a need to fund their particular program. If their endowed fund is supporting a service, the service may no longer be required. If supporting research for a disease, the disease may be cured. If for an educational program, technology may have changed, rendering the program obsolete.

How to encourage gifts to the endowment fund

Traditionally, endowment funds were established on the initiative of the donor, who often designated the use of the funds, and sometimes negotiated very restrictive terms. Your charity should establish terms for general endowment, and for named funds. To secure the future of your charity you must proactively market the concept of endowment giving.

1. Establish a memorial giving program

The concept of giving in perpetuity may be very appealing. Rather than purchasing flowers or cards as remembrances, suggest a gift to the endowment fund as a gift that will go on giving while serving as a permanent memorial. When you think about it, you and your family are only known for two generations. You can name your parents, their date of birth and occupation. Generally, you are familiar with your grandparents, but beyond, it becomes a blur. A named endowment is a way to perpetuate your name forever.

2. Use the endowment fund to encourage all forms of giving

The endowment fund can be used as a tool to encourage donors to make cash gifts, major gifts, and planned gifts. An endowment fund will give direction and purpose to a donor’s gift, as well as encourage the donor to consider a planned gift.

3. Develop a list of giving opportunities

The list should be specific enough to assure a gift that will bring maximum benefit to the charity, yet broad enough to be interesting and meaningful to the donor. The list should state specific amounts needed to accomplish certain charitable work. For example, churches may wish to state that an endowed amount of $50,000 is needed to provide for youth ministry. Charities in the medical field may wish to state that $100,000 is needed to endow a research fund, etc.

The underlying principle here: the understanding that the charity has a means to hold, protect, and safeguard the donors’ funds; to use those funds beyond the donors’ lifetime; and to uphold those things that are truly meaningful to the donors.

To create even more interest and participation, promote one of the giving opportunities as a means to create a ‘Centre of Excellence’. Donors would be encouraged to endow a core program or a special project, and the promotional message would be either, that the fund would keep the charity on the cutting edge of service, or that the fund would help maintain the charity’s reputation for excellence.

4. Use the right language

Promotional words help to get the message across.

Permanent:

Often donors do not understand the concept of an endowed fund. Using the phrase “permanent fund” conveys the meaning that the endowment will be around long after their passing, and that the charity has the means to fulfill the donors’ wishes.

Giving in perpetuity is a very attractive and satisfying option for donors.

Open:

Often donors do not realize they can continue to contribute to an endowment fund after it has been established. Using the phrase “open fund” conveys the meaning that the donor, family, friends, or anyone can contribute to the fund over time and make it grow.

This will help promote inter-generational gifts. If the donor establishes the fund to memorialize a parent, the fact that it is “open” becomes a very powerful ask to the next generation. They will want to support the memory of their grandparents, or even their great grandparents. In a sense, this truly becomes a family fund.

5. Encourage donors to give periodic gifts over time

Suggest a strategy of gifting over time, whereby a donor establishes a named endowment fund and contributes to the fund over a lifetime. The final gift is made by the proceeds of a life insurance policy, the residual of an annuity, or a bequest from the will.

The underlying principle here: to develop consistent donors out of irregular donors; raise donor sights; set the ground for a major gift; and raise the possibility of a planned gift.

6. Encourage donors to endow their annual gifts

Market the concept of endowing the annual gift as a means to attain a measure of immortality. Donors not only have the opportunity to support your charity and the endowment fund during their lifetime, they will also have the opportunity to arrange for their support to continue beyond their lifetime.

This excerpt is from WELL ADVISED: A Planned Giving Reference Source for Professional Advisors. Additional information on marketing strategies can be found in the chapter: Endowment Funds. Written by best-selling authors Sherry Clodman, CFRE and the late Dr. Edward H. Pearce, this ‘must have’ reference guide may be ordered by calling (416) 345-9403 or by emailing: info@hilborn.com.