As we saw last month, the term “endowment” in its purest sense describes funds transferred by donors in perpetuity with earnings (and perhaps a portion of principal) devoted to a particular use. Some entities seem to be more successful than others at attracting donors interested in establishing endowments. Examining a few of the traits shared by these organizations may be useful to those who would seek to encourage these types of funds.
Mission and the concept of endowment
Some nonprofits seem to enjoy larger endowments because their missions are compatible with the concept of perpetual funding. Scholarship funds and endowed chairs at educational institutions are examples. The earnings of these endowments benefit the institution immediately through their subsidy of tuition payments or reduced pressures on salary budgets.
Some organizations, on the other hand, encounter difficulties when the idea of perpetual funding comes up. If your mission involves addressing one particular time-sensitive issue, for example, donors may not see the need for and be reluctant to provide perpetual funding. In such a case, seeking funds for the long term may seem incompatible with the urgency of your cause.
Such organizations may want to rethink the ways they encourage bequests and other planned gifts. We know, for example, that most bequest dollars are received within just a few years of planning the gift and these dollars are generally not restricted to endowment. Therefore, they may be used immediately as the board directs. In this case the bequest is, in effect, the donor’s final gift in support of what may be an urgent cause.
We believe that to be successful in encouraging gifts for long-term endowment, the charitable entity in question should be perceived as “perpetual.” For many donors this means they should not be able to remember when the organization did not exist.
On the other hand, organizations that have existed for only a relatively short period of time may find donors reluctant to make gifts to be held in perpetuity. An exception to this may be a young organization that has been successful in quickly positioning itself as a perpetual entity because its mission will be relevant for many years to come.
Trust in management
Regardless of how long an organization has existed, donors who give funds restricted for perpetual use are understandably concerned that their gifts will be managed and utilized prudently. We find that organizations that are successful in building endowments tend to be led over time by a series of leaders who inspire confidence in donors, who in turn endow their mission for the future.
What if management does not believe your organization or institution is at a point where it could be, or should be, endowed? Does this mean you should not encourage planned gifts expected to come to fruition over the next five to 10 years? Absolutely not.
You may instead want to stress that donors can make their “gift of a lifetime” through careful planning, and that the funds, when received, will immediately be put to productive use.
Also keep in mind that many gifts, such as term-of-years trusts, charitable lead trusts and property gifts, provide funding immediately or over short periods and can thus be used to meet needs in the relative near term.
Make certain that your donors understand your needs for immediate as well as capital and long-term support when appropriate and that you are ready to help them help you address those needs.
Of equal importance is the task of assuring that management and volunteer leadership do not import concepts of endowment that are, or were, entirely appropriate for another organization with which they have worked or volunteered, but that may not be compatible with the mission or history of your organization.