An endowment is a legal structure (read: a fund) that pools, manages and invests donated assets to fund specific goals. Endowments typically fund nonprofit institutions or charities like universities, museums and hospitals.
Simply put, an endowment is a fund organized as a trust, foundation or charity that pays out to nonprofit beneficiaries or programs (“endowment” can also refer to a nonprofit’s investable assets).
Endowments usually fund specific purposes like scholarships, research or daily operations. You can often find them at:
Individuals and institutions can set up or donate to endowments that fund worthwhile goals. Nonprofits can also design their own endowments to secure their own ongoing funding. In both cases, donations (including cash, stocks, bonds and real estate) are tax-deductible.
Many endowments leave their donated balance, or principal, intact. The fund administrator invests this capital into a risk-adjusted portfolio that generates spendable income. Theoretically, a well-designed endowment can produce income indefinitely.
Most endowments set up three basic policies to ensure they’re properly managed:
Endowments come in four flavors:
You often hear about large endowments funded by mega-billionaires. But even retail investors can make tax-deductible donations to existing endowments.
That said, if you want to establish an endowment, you generally need a substantial starter donation. For example, many endowment managers recommend a “minimum initial gift” of at least $10,000-$25,000. Others allow donors to start with smaller amounts and build funds over time.
Donating to an endowment can help you lower your tax bill while positively impacting the world. But generally, you’ll want to donate to an existing fund instead of starting your own.
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