People give to a cause or charity for a variety of reasons. Some may have benefited from a certain institution during a difficult time in their life. Some others may have made a college degree possible because of a scholarship grant and yet some others may have experienced extraordinary care in a hospital for themselves or for their loved ones. Because of this, they feel the need to pay it forward so that these institutions can continue to offer assistance or care to those in need.
More than 80% of Americans do contribute to their choice of nonprofit groups in their lifetime. However, a research conducted in 2013 revealed that only about 7% of the people choose to continue their contribution through a charitable bequest.
A charitable bequest is defined as the distribution of estate through a last will and testament to a charitable organization. Also called legacy gifts, bequests are important sources of income and support for nonprofit organizations.
Different Kinds of Charitable Bequests
General Bequests are gifts to certain people or causes that come from the estate designating a specific dollar amount, a particular asset or a fixed percentage of the estate. This is given without any specific instructions and are meant for the general purposes of the charitable institution.
Residual Bequests are gifts that come from the residual portion of assets of the donor after all the terms of the will have already been satisfied.
IRA Bequests are gifts that come from the individual retirement account of the donor. Some people may choose to donate part or all of their regular individual retirement account to charity by designating the charity as the beneficiary.
Specific Bequests are gifts of items or property for designated purpose. When making a bequest, donors can earmark their donation to be used for specific purposes such as for instance, asking that funds be used for putting up a community library. According to Investopedia, “When the bequest is intended for a specific purpose, it is called an endowment.” A bequest of this nature is best discussed thoroughly by the donor with the charity in advance so it can prepare for the money and make plans on how best to use it. This also helps prevent misunderstandings that may arise.
What is an endowment? To endow means to “create an income” for someone or something.
Because the goal is to create an income, it must not be expendable but should provide continuous funds for an intended purpose. In a charitable endowment, the money is invested to provide for both income and growth of the principal amount. The interest earned is used to support charitable work and the appreciation or growth of principal is left to earn more interest for the succeeding years.
Setting up an endowment fund for a charity holds many advantages. It provides a steady, dependable regular source of income for a charitable institution. This means stable support for the causes that the donors earmarked their funds for. Managed correctly, the initial fund not only provides for the specific cause of the donor, it grows to provide more in the years to follow.
More importantly, having an endowment set up gives donors the confidence that their funds will be put to good use. It demonstrates the commitment of a charity to its future and its causes. A donor looking to leave a legacy would want an institution which would be around to continue making a difference to the community.