How To Launch an

Endowment Giving Program

For Your Nonprofit, Part I:
What is Endowment and Are
You A Good Fit?

Janet Levine
Janet Levine Consulting
Inside Look...
This guide will cover the following topics:

01 Introduction

02 What Is an Endowment?

03 What Do Endowment Funds

Support?

04 How Are Endowment Funds Given?

(Part 1)

05 Is Endowment Giving Right for Your

Nonprofit?

06 Summary
01. Introduction

W
hen the topic of endowment comes up in nonprofit circles, it is
usually about the endowments of large universities, museums,
or hospitals. Occasionally, endowment conversations are about
a wealthy individual or family who endowed a trust or foundation so that it
could, over time provide support (and hopefully sustenance) to other nonprofit
entities. When we think about endowment, we think large. We think of vast
amounts of money. And we often think about the many people it will take to
manage the investments for the endowment funds.

But endowment doesn’t have to only be for large organizations. Organiza-

tions of any size would benefit from having a pool of money that could help
to ensure its future, smooth over rough stretches, and show other potential
donors that the organization is well situated for the long haul. Of course not
all should launch an endowment giving program. There are many things to
consider, and many policies and procedures that will have to be put in place
before you commit to raising endowment funds.

It has often been said that fundraising is a marathon, not a sprint, and
endowment giving is very much a long-distance enterprise. You wouldn’t—or

3
at least, you shouldn’t—seek endowment giving unless your financial house is
in order. If you end each year a little (or a lot!) in the red, then your first order
of business is to increase your annual support and ensure that your operational
budget is fully funded. But if you are in good fiscal health, then endowment
giving may just be an initiative that will put your nonprofit a step above.

Over the course of two ebooks, you will be guided on how to launch an
endowment giving program for your nonprofit. This first ebook will look at
what endowment is, what endowment funds, how endowment funds are
given, and—most critically—whether endowment is a good fit for your organi-
zation. In Part II, we’ll look at all those policies and procedures, and consider
who your endowment donors are and how you can find them. We’ll drill more
deeply into how endowment funds are given and then we’ll look specifically
about launching an endowment giving program.

Let’s get started by looking at endowment and what it actually is.

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02. What Is an
Endowment?

A
ccording to Investopedia (https://www.investopedia.com)—an online
financial content resource, an endowment is “a donation of money
or property to a non-profit organization, which uses the resulting
investment income for a specific purpose.”

True as that is, it doesn’t quite do justice to the intricacies of endowment.

Endowment is a pot (or many pots) of money that is invested for a period of
time, usually in perpetuity. These pots are called the principal or corpus and
they may not be touched. The income, or some percentage of the income that
is earned from the investment is available for current use.

Although most endowments are forever, there are some that are time limited.
Many private foundations for instance, have made the decision that at some
particular point in time, all the money in the endowment must be expended
and the foundation will close its doors. And sometimes the donors themselves
only want the endowment to last for a specific period of time.

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TRUE ENDOWMENTS, QUASI-ENDOWMENTS, AND
RESERVES
Whether time-limited or in perpetuity, these are known as “true” endowments
and are created by donor restrictions. The purpose of the endowment can
be to support the general or operating fund, or it can be to support a specific
purpose. In either case, the gift itself is a restricted gift because of the limita-
tions put on it by the donor.

Prior to 2017 when new rules made by the Financial Accounting Standards
Board (FASB) came into play, nonprofits had three types of funds:

• Unrestricted funds—funds your organization can use for any purpose as long
as it stays within your mission (so no, you can’t use unrestricted funds to take
a trip to Fiji unless that is part of the organization’s mission)

• Temporarily Restricted funds—these are funds the donor says “use now for
this specific purpose”

• Permanently Restricted Funds—fund amounts that are donated is to be

invested and only the income earned from the investment may be used for
current purposes. Endowments with permanently restricted funds

The new rules changed the three categories into two:

• Gifts “without donor restrictions”

• Gifts “with donor restrictions.”

Clearly, endowment is the latter.

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BOARD DESIGNATED FUNDS
From time to time—generally when there is an unrestricted windfall donation,
the board of directors of a nonprofit organization will designate these funds to
act as if they were endowments. Called quasi-endowments, these funds have
one very important difference: in a true endowment, the principal may not be
invaded. In a quasi-endowment, they can.

Although the board has decided that these funds be restricted in use, FASB
requires that nonprofits report these funds as unrestricted. That makes sense.
Remember, only a donor can restrict a gift.

Quasi-endowments are also frequently created if a nonprofit raises—through

fundraising or fees—more unrestricted funds than it needs for operations in a
particular year. The excess or surplus may get swept into an investment fund. If
the organization has sufficient reserves, which we will discuss in a minute, the
board may choose to use these funds to create or add to a quasi-endowment.

RAINY DAY FUND

Finally, there are reserves. These, and not endowments are often called a “rainy
day” fund. They are monies you set aside for your regular operation should
you face an unexpected shortfall. Typically, reserves come from a surplus of
unrestricted funds. While they may be invested, it is critically important that
the investment fund be liquid, and you can get your money out quickly and
without a penalty. Many nonprofits operate without such a fund, however, it is
recommended that an organization keep 3-6 months in reserve.

Reserves of course, are not endowments, although the two are often
confused. Worse, too many nonprofit organizations and/or their boards
decide that if they have one, they do not need the other. That may be true,
as long as one is the reserve fund. Endowment is not for every organization.
But do make that decision based on a clear assessment of your organiza-
tion’s resources and needs.

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03. What Do Endowment
Funds Support?

F
rom an accounting standpoint, all endowments are considered “restrict-
ed.” Remember, these are funds that can only be used for specific
purposes or only after a condition is met. That condition may be a
specific amount of time, after a certain amount of matching funds have been
raised, or any other circumstance the donor decides on. Only donors may
impose restrictions and conditions though again, boards can create designa-
tions for funds. However, while all endowments are technically restricted, the
purpose for which the money may be used isn’t always so limiting.

TYPES OF ENDOWMENT FUNDS

While endowments can, and do come in many different shapes and sizes,
there are essentially two types of endowment funds that donors can choose
between:

THE GENERAL ENDOWMENT FUND

This is a pooled fund, usually made up of gifts from many different donors.
Typically, this fund is for operations, and gifts to this fund can be large or small.

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NAMED ENDOWMENT FUND

These are funds that commonly carry the “main” donor’s name and are for
something specific. This might be for a program, a position, or a scholarship.
For example, The Janet Levine Endowed Chair of Fundraising. Has a certain
cachet to it, doesn’t it?

The amount to name an endowment fund is generally very high. As you

consider how much it would cost to endow something, remember to consider
not just what it costs today, but what you think it will cost tomorrow. That
means if a program costs $10,000 a year today to run, and you are assuming
that the fund will earn 5% a year, it would take $200,000 to fully fund the
program. However, it is more than likely that the cost of the program will grow.
Therefore, it would be wise to price this at a minimum of $250,000 and then
reinvest the excess interest so the fund continues to grow as the cost expands.

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AN ENDOWMENT FOR….
Schools and universities often fundraise for endowed scholarships as do other
organizations that charge various fees or tuitions for their programs. As with
all endowments, these can be pooled scholarship funds. This means, many
people giving to the fund which will then award as many scholarships as the
amount the funds each year allows—or a named scholarship where the donor
supports one or more specific scholarships. This is often very attractive to
donors because depending on how quickly they fund the endowment, they
can see the fruits of their generosity and also get to meet those who benefit
from their support.

Endowments are also often set up to fund a position or a program. For your
nonprofit, these are most useful if they are supporting something you already
have or do, rather than creating something new. If it is something new, do
make sure that a) it fits your mission and b) it is something your organization
really wants to do. Yes, the donor is in charge of restricting a gift, but that
restriction should always meet the nonprofit’s needs.

One type of endowment that I was very successful with when I was a ground
fundraiser was asking my major annual donors, those who gave $5,000 or
more each and every year to endow their annual gifts. If, for example, my
donor regularly gave us $5,000 a year, I would ask them to consider an addi-
tional gift of say $100,000-150,000 (payable over 3-5 years). Assuming an
interest rate of between 5% - 6%, this would endow their annual gift forever.

As we will discuss a little later, if you launch an endowment giving program, it

is critical that you consider if endowment is right for your nonprofit. Beyond
understanding what your endowment giving program could support, you also
need to consider how endowment funds are given.

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04. How Are Endowment
Funds Given? (Part 1)

A donor can give a gift of endowment in a number of ways. The gift can be:

• Current: Cash or appreciated stock that immediately is invested and begins

earning interest

• Planned: Also known as Deferred. These gifts will not be recognized until
the donor (and, depending on the type of planned gift, perhaps another
beneficiary) passes on.

These types of gifts can also be combined which allows the donor to make
a much larger gift. For example, your donor could make a $100,000 gift to
endowment, $25,000 of it might be in cash while the remaining $75,000 will
come about as a bequest in the donor’s will.

As noted above, general endowment funds are typically made up of gifts, both
current and deferred and come from many different people. Occasionally,
an endowment fund for something specific can also be comprised of many
smaller gifts, but this is not the norm. Typically, one person or family gives
a very large gift to endow the project and or program, and that gift is often
made over a number of years. Whatever is endowed is often named for the
generous donor (or the donor’s family).

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CURRENT AND DEFERRED ENDOWMENT GIFTS
Current gifts are arguably the holy grail of endowment giving. These are
immediately put into the endowment fund and begin earning interest. This
interest can then be used in real time. Both the donor and the organization
have the benefit of seeing the gift in action.

But current gifts, important as they are, comprise only a small part of
endowment giving.

Most endowments are made up of planned or deferred gifts. This is both good
and bad for most organizations. Good in that donors can often make much
larger gifts from their estates than they can or will from current assets. The
bad, of course, is mainly because you don’t know when the gift will come in
and that means you don’t necessarily know what the value of the gift will be at
the time you receive it. If the donor has further restricted the gift to support a
specific thing, you don’t know if the amount to endow that specific thing will
have increased significantly or, even if the program will still be of importance
to your organization.

12
The most difficult part of planned gifts is that often the smaller your organiza-
tion is, the donor doesn’t let you know about their plans. While it is wonderful
when you receive a planned gift windfall, the opportunity to honor that donor
during his or her lifetime is forever lost.

YOUR PLANNED GIVING PROGRAM

Understanding that planned gifts will make up a big part of your endowment
giving program means that you must develop a planned giving program
that fits your organization. There are many planned giving vehicles that are
fabulous for large organizations but may not be manageable for smaller
ones. More importantly, how will be the smaller organizations handle these
planned gifts?

When I worked at large universities donors created charitable remainder

trusts as an example. The university itself acted as the trustees for those CRTs.
Smaller organizations should avoid ever being the trustee.

Likewise, if a donor wants your organization to be the beneficiary of a charita-

ble annuity, your organization should tell the donor how fabulous that is, and
then guide them to a third party where they can purchase the annuity. Under
no circumstances should small organizations sell gift annuities themselves.
The requirements of holding the annuity are extremely onerous, especially in
highly regulated states such as California and New York.

Large nonprofits may offer their planned giving donors many options in how
their gifts can be made; smaller ones may limit their offerings to bequests.
Smaller organizations of course, can talk with certain donors about how
various other options can be held and managed elsewhere while the donor
carefully documents the nonprofit as a beneficiary.

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ALSO/AND
One caveat here is that you should not think of endowment giving possibilities
as an either/or. As you approach people and market the idea of endowment
giving, make sure you are thinking holistically and make all your asks in an
integrated way. Donors who have said yes to endowment giving, either with
a current or a planned gift they are most likely to say yes again if you have
stewarded their original gift and ask them in an appropriate way.

Taking care of your donors is something your organization should do for all
gifts. The donor attrition rates for nonprofits is horrific. Each year, the Fund-
raising Effectiveness Project reports on this, and consistently they find that
for every $100 new dollars raised by nonprofits, well over $90 of that is lost
through attrition. Worse still is the fact that for every 100 new donors gained,
close to 100 existing donors cease to give to that organization. Small organi-
zations have much worse retention rates than do the larger organizations, but
the problem exists everywhere in our sector. Creating a robust stewardship/
donor relations program will help to ensure that your fundraising program and
your endowment giving are strong.

Saying thank you to donors and showing why their support is important is
something every nonprofit should do. Those who have an endowment giving
program need to craft very special ways of doing this for those donors whose
gifts won’t be realized until after the donor is gone.

Of course before you go out and get donors, you need to be sure that an
endowment giving program is right for your organization.

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05. Is Endowment Giving
Right for Your Nonprofit?

S
ome years back, I worked with a national organization that was helping
independent schools build endowment. Some of the schools I worked
with were very small, and many of them had a hard time meeting their
annual operating budgets. I believed then and having followed up with several
of the schools, believe even more strongly now that endowment was really not
for those schools, at least not at that time. All of them did raise endowment
funds and many of them did meet the national organization’s requirements to
qualify for additional perks. But many of them also suffered because they were
putting their efforts in the wrong (for them) places. All because the amounts
they raised really didn’t help them out.

This wasn’t of course, a total disaster. Through their endowment efforts they
did raise awareness of planned giving, and they have a number of committed
bequests and a way of engaging new families in planned giving. For many of
these schools, however, asking for current endowment gifts is off the table for
the moment.

I also work with numerous small nonprofits, who raise sufficient annual
operating funds. For them, endowment is something they should strongly
consider.

15
Size of course, is not the only consideration. I work with large organizations for
which endowment is too far a reach, as well with some who are raising serious
endowment funds. How will you decide whether launching an endowment
giving is right for you? Let’s look at the things you should consider.

THE ELEMENTS OF A SUCCESSFUL ENDOWMENT

GIVING PROGRAM
There are a number of things that help to ensure a successful endowment
giving program. These are:

1. A history

2. A board that is committed to endowment

3. A strong annual fund

4. Fundraising success

5. Strong financial oversight

6. A cadre of askers who are also committed to endowment

Let’s look at these one by one:

A HISTORY

We’ve all heard the saying that the past is prologue. This is very true when you
want to launch an endowment giving program. If your organization is less than
10 years old, you may be too young for endowment giving. People want to
know that you are solid before they are willing to commit to your future. That
means that they can look back at your accomplishments, review your financial
statements, see a pattern and feel comfortable about what you have done. All
this will encourage them to believe in and support your future.

16
A BOARD THAT IS COMMITTED TO ENDOWMENT

Before you actually launch an endowment giving program, it is a good idea to

do a presentation to your board on what endowment is and why it would be
good for your organization. I would also recommend having your board vote
to launch an endowment program. If you already have a program in place, but
your board isn’t terribly committed to it, now is the time to get their buy-in.
Beyond saying they support endowment, in my opinion, each and every board
member must commit to an endowment gift, both cash and legacy. And yes,
this should be a commitment that new board members also make. And yes
again, this should be in addition to the annual gift you should be expecting
from your board members.

A STRONG ANNUAL FUND

In order to find other non-board member donors, you need to have a strong
annual fund and a solid base of loyal donors. It would also help to have a
robust comprehensive fundraising program, one that goes beyond annual
giving and has a core of mid-level and major donors. You have already
qualified these mid-level and major donors and know they have the capacity
to make a larger gift. You’ve also undoubtedly been building a relationship
with these larger donors. For these reasons, you’re already halfway to an
endowment gift with them.

17
FUNDRAISING SUCCESS

Just having a fundraising program is not enough. You must also have
fundraising success. As what has already been said, if you are not raising
enough to keep your organization in the black always, and don’t have
adequate reserves, you may not be ready to launch an endowment giving
program. If however, you do have a successful history of raising funds and of
keeping donors happy and recurring, then launching an endowment giving
program is something to consider.

STRONG FINANCIAL OVERSIGHT

Endowment is about investments. If your endowment funds don’t do well,

your donors won’t be happy, and your prospects won’t turn into endowment
donors. And, of course you won’t be helping your organization. Consequently,
your organization must have strong financial oversight. Your board members
should all both understand your financial statements and keep an eagle eye
on how your staff is using the money that has been raised. Unless you are a
big organization, you will undoubtedly hire an investment firm (or several) to
manage your funds. Nevertheless, you must have board and staff members
who can provide adequate oversight to what these firms are doing. They also
need to be financially savvy enough to understand the vagaries of the market
and know when your investments are underperforming.

A CADRE OF ASKERS WHO ARE ALSO COMMITTED TO ENDOWMENT

Last but not least, you must have a group of people, both staff and volunteers
who are not afraid of endowment giving and can make a clear and compelling
case to your prospects about why this is a great investment for them and
important for the future of the organization.

18
Summary

L
aunching an endowment giving program is not for the faint of heart, but
it may just be the right thing for your organization. As long as your fiscal
house is in order, your organization may be primed to consider raising
funds not just for today but also for tomorrow.

As we outlined in this ebook, before you launch such a campaign, there are
many things to consider in order to ensure that endowment giving is a good
program for your organization. As you think about what endowment is, what
it supports and how these funds are given, you must think about your donor
pool. Do you have the right donors for this type of a program? And do you
have the right resources?

If you aren’t raising enough funds to keep you strong today, tomorrow should
not be your focus. However, if you can build your endowment giving on top of
a successful comprehensive fundraising program, you will not only ensure the
future, you will be able to guarantee that your fundraising for programs today
will be strengthened. Those who give to your future want to ensure that the
present is strong—and the future bright.

In the second book of this series—How to Launch an Endowment Giving

Program for Your Nonprofit, Part II: How to Set Up Your Program – you’ll learn
about the policies and procedures to have in place and what else you need to
do. After you’ve finished this ebook, make sure you download Part II!

As Mahatma Gandhi wisely said: “The future depends on what you do today.”
And today is a great day to begin to launch your endowment giving program.

19
 Meet the Author
J
anet Levine of Janet Levine Consulting
has worked with hundreds of nonprofit
organizations taking them from mired to
inspired. Janet focuses on working with staff
and boards to increase fundraising capacity
and build sustainability. Her philosophy is one
of collaboration where together we develop
and implement comprehensive programs that
fit the needs and resources of the organization.

Prior to opening Janet Levine Consulting, she

spent more than 20 years in the field. Beginning
her development career at the School of
Engineering at USC, Janet has also held senior advancement positions at the
Reason Foundation, the University of Oregon, the American Film Institution, El
Camino College and Pasadena City College. Just prior to opening Janet Levine
Consulting in September of 2007, Janet served as Vice President of University
Advancement at Cal State Dominguez Hills.

In addition to her consulting practice, Janet regularly leads workshops in

fundraising and board development across Southern California. She has
taught in the Fundraising Certificate program at UCLA and facilitates four
online courses (Get Grants, Introduction to Nonprofit Management, Marketing
Your Nonprofit, and Essentials of Fund Development) that are available
through libraries, universities and colleges in the US and overseas. She is also a
sought-after presenter at professional conferences. She is also the co-author of
Compelling Conversations for Fundraisers, available at Amazon.

For more from Janet Levine, visit her website.

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