Just as each one of us faces the challenge of balancing our financial obligations today while preparing for the uncertainty of tomorrow, charities experience a similar destiny. Today, in Canada, over 75,000 registered charities compete for some $3.2 billion donated annually for their collective causes. With disbursement quotas and timelines that administrators must adhere to in the spending of funds received, charities cannot help but be concerned about their mere existence, should the well run dry.

While universities and hospitals strive to compete as government dollars dwindle, arts and cultural facilities attempt to attract the most talented, and health-related charities struggle to control disease, planning to attract donor dollars and donor loyalty has become big business. With this boom in the charitable sector, competition has led to creativity. Gone forever are the days when the dollars flooded in to support a cause. For those charities which have not responded through increased pro-activity, market share reduction is almost a certainty.

As the 1990s witnessed, through explosive growth in the area of planned giving and one-on-one relationship building, the future standing of charitable causes has been strengthened through a donor-centred approach to fundraising. By meeting the needs of the donor, there is a greater likelihood that market share will increase.

Marketing the ability to perpetuate giving

As donors grow older, their philosophies take on new shapes, as do their giving patterns. There is a greater understanding of mortality, which may be coupled with the desire to “leave one’s mark” through a gift that has the ability to perpetuate annual giving far into the future. By marketing the ability to perpetuate giving, donors are educated as to the many opportunities to ensure that their name – or the name of a loved one – will be remembered after they’re gone. Enter endowment funds.

Endowment funds are set aside to be invested for the long-term, providing a continuous source of income for charities. This income is then used to meet the on-going needs of programs and services provided by the organization. As only the income generated is available to be spent, the initial capital remains intact.

Gifts which can be accepted for endowment purposes include those which are generally considered to be planned gifts. In addition to bequests, outright gifts of cash, residual interest gifts, insurance, stripped bonds, retirement funds, etc. may be accepted.

When faced with cyclical economic uncertainty, the strength of endowment funds may provide for financial stability within the charitable sector. And, donors who choose to support charitable endowment funds have the knowledge that they will perpetuate their annual giving even after they are gone. This allows for individual satisfaction in knowing that things have been taken care of, perhaps providing a certain degree of immortality.

Some ethical considerations

Once it has been established that endowment funds can assist in providing for the future viability of charitable efforts, it seems to follow logically that they must be right for all charities. This, however, is not necessarily the case.

When closely examining the purpose of building endowments for an organization, one must be careful to ensure that the mission and vision of the charitable cause will be enhanced by so doing.

It’s accepted that universities must be well positioned into the future, providing quality education for generation upon generation. Therefore, building endowment funds is a strategy they embrace. Arts and cultural organizations have similar desires, to intrigue and educate these same future generations. And, as we assume that accident and illness will unfortunately continue to prosper, many hospitals have responded to the concept of endowing funds to meet their future needs.

But consider the charity whose exclusive purpose is the eradication of a disease. Is its primary obligation not to spend every last penny it receives now to find a cure, or lasting treatment? For example, think about the advances that have been made in the treatment of childhood leukemia over the past few decades. Now imagine if some thirty years ago, an endowment fund was created to provide an on-going source of funding for leukemia research. We must question in this case just how much advancement would be evident today.

What does the donor want?

Even in such cases, however, it may be argued that in providing a donor-centred approach to fundraising, a charity must ensure that it can appease the donor through the creation of endowment fund opportunities. In the leukemia example, it is clear this may not be the most prudent use of limited resources, and actually may be contrary to the ultimate best interest of both the donor and the charity. Perhaps, if the donor would only support funding leukemia research through an endowed gift, the mission may be better served in accepting this gift, rather than turning it down. Ultimately, the bottom line would be increased revenues from investment income received, which would support gift acceptance from a reactive standpoint, for these charities.

Clearly, the decision will rarely be a simple one, and in an increasing number of charities the question of whether or not to establish endowment funds is a matter of serious concern.

Based on a presentation, “Structuring Endowments for Charities”, by Linda Clemow, Manager, Gift Planning, Canadian Cancer Society, on July 9, 1997, at a Strategy Institute forum on Charitable & Planned Giving Strategies for High Net-Worth Advisors.