If you ever served on a charity’s board (or several!), you are no doubt familiar with the concept of an endowment. Many charities seek to establish endowment funds and reserve funds to help ensure that their missions stay strong during economic downturns and periods of increased community need. Frequently they will look to the Winona Community Foundation to manage those funds.
What you might be less familiar with, however, is when an individual or family establishes an endowment fund. Although it is not frequent, the Foundation works with people like you to establish endowment funds to support the needs of our region in perpetuity.
Here are answers to four frequently-asked questions about setting up an endowment fund.
Why would individuals or families establish an endowment fund at the Foundation?
The Foundation serves as the hub of philanthropy in Winona. We connect donors like you to community needs you care about, and this includes offering the opportunity to make a charitable investment that will last in perpetuity – once the dollar is contributed it goes to work generating income returns that will support community needs now and for decades to come. Your endowment at the Foundation can look and act like a private foundation with less administration and expense. It can also serve as a family legacy, allowing your heirs to stay involved in grantmaking decisions now and in the future.
How does an “endowment” work?
An endowment is a specific pool of assets that has been donated with the instructions that the dollars are invested and tracked by the Foundation such that a modest portion (usually based on a percentage) of the assets are distributed each year to charitable causes, and the rest of the assets remain invested to grow in perpetuity. This growth, in turn, helps the endowment provide even more support each year to the causes for which it was established.
Who decides where the endowment distributions go each year?
You, or whomever you designate. If you would like to be actively involved in recommending grants, you would be the named advisor. If you would prefer someone else in your circle to recommend grants, you would name them as the advisor. If you would prefer not to be actively involved and know which nonprofits you want to benefit, you can name those charities as annual grantees and the Foundation will ensure those grants are awarded. If you would prefer not to be actively involved and have an area of interest (arts, social services, animals) or simply wish to benefit the greater Winona community, the Foundation’s board of directors would take responsibility for awarding grants in the name of your endowed fund.
What does it take to establish an endowment fund?
Setting up an endowment fund is as easy as setting up any other type of fund at the Foundation. We have simple paperwork that captures the name of the endowment fund and any areas of interest you’d like to support. Then, you gift cash or other assets such as stock or real estate, to fund the endowment. You can make additional gifts to the fund at any time. You may even consider a gift in your will to grow the fund. Or even better, you can make the fund a beneficiary of an IRA, thus saving your heirs possible income tax liabilities. Related, if you are not the advisor to the fund and are over 70 ½, making a “Qualified Charitable Distribution” from your IRA directly to your endowment fund is a very effective way to make an impact. And if you’re at the age of required minimum distribution, your QCD can count towards fulfilling your RMD.
If you would like to explore your options to create an enduring legacy through an endowed fund, contact Nancy Brown for a no obligation conversation.
