“What is an Endowment”
An Endowment is a “savings” fund that is set up to provide perpetual support for a non-profit organization. Only the earnings or a % of the earnings of an Endowment Fund are distributed. The principal is never spent down. By creating an Endowment, you allow the money to work for you. Endowments make wonderful vehicles for “legacy giving.” This allows a person to continue his support of his favorite charity long after the donor has passed on. Bequests are most often given for the purpose of Endowments.
Endowment Funds are carefully and conservatively invested for the long term. An Endowment lasts forever, as the principle is never spent. Any money given to an Endowment becomes a part of the principle (the “core” of the fund.) Any money earned in the Endowment can be used for distribution. Again, gifts to an Endowment are never spent. Only the investment earnings on the Endowment are available to be spent.
The main reason non-profit organizations have an Endowed Fund is to be able to provide support for an organization’s operating expenses from the Endowment earnings, which allow all other gifts to the organization to be used directly to provide services, etc.
Endowment distributions to the organization are usually planned in such a way as to accumulate some earnings each year in order to provide for regular distributions in lean years where earnings are down.
To see how your gift to an endowment multiplies, click on the link below for an interactive endowment calculator!