Early use of the endowment concept in philanthropy is found as far back as ancient Egypt and Rome when academies for higher learning were endowed by wealthy patrons. Later, the medieval church in England cleverly encouraged the purchase of chantries to endow salaries of priests who would offer perpetual prayers for the soul of the purchaser.
Even the founding fathers of the United States, with all they had to do, took time to establish endowments. For example, George Washington gave 100 shares of stock in the James River Company to endow a small school called Liberty Hall Academy in Lexington, Virginia, now Washington and Lee University. Benjamin Franklin bequeathed $8,000. to the cities of Boston and Philadelphia as endowment funds to help young tradesmen become established.
AN OVERVIEW OF HOW CHARITABLE ENDOWMENTS ACTUALLY WORK
A charitable endowment is a fund which is kept in perpetuity (forever) to provide earnings for the benefit of a charitable cause. Endowments are created to secure the future of your organization by ensuring there will be resources available forever—which is why we like to refer to endowments as forever funds.
Sounds great, right? It is! However, the decision to build an endowment, or a forever fund, deserves thoughtful consideration by the organization’s leadership. Here is a brief explanation of how endowments work: in a charitable endowment, the principal (the initial donation) is never spent. The principal is invested to provide both current income and growth on the principal. The appreciation of principal is left with the principal, and over time, the investment performance should provide income from the endowment which far exceeds the amount of the donor’s original gift.
Here is a great infographic to show how endowments provide funds forever:
Not every organization has an ongoing cause that plans to benefit from income in 50 years. An example of such an organization would be an organization serving a community after a natural catastrophe, or an organization planning a community celebration or event. For organizations with needs such as these, an operating reserve (sort of like a savings account) might be more fitting than an endowment.
Organizations that require a fund to sustain their future for an ongoing cause, and feel secure in providing for daily organizational expenses, are excellent candidates for an endowment.
Every organization, big or small, deserves an endowment. Download your FREE endowment building program checklist to get the ball rollin' on your organization's forever fund!
Still have questions? We’ve got answers! Read our “5 Most commonly asked questions about Endowments”.
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