Endowments - For the Future

In the not-for-profit world, endowments are crucial for the continuation of an organization. However, they are often difficult to secure because the donor cannot physically see the results. Endowments are funds that are donated as a source of income. They are designed to allow a donor to support a program in perpetuity or for a fixed amount of time. An example of an endowment is for a Rabbinic Fellowship or providing flowers for the bima every Shabbat. An endowment is usually a large sum of money invested and then the interest is used to support the program or expenditure. Inflation is an issue for endowments, especially in the economy as it is today. The purchasing power of an endowment fluctuates with the market and it is wise for the person handling the endowment to put some of the interest earned back into the capital to make sure that the fund has the ability to endure. In most cases, "a donor wanting to endow a particular activity must usually make a gift that is 20 times larger than its current cost" (Miller, 62).

Funding an endowment in perpetuity may be an unwise decision for a congregation or organization. Over time, the fund will only be supporting a project 4 or 5 percent of the capital, which may not be enough to sustain the program without also using some of the regular operating budget. Another reason a perpetual endowment may be unwise is because the need may not exist in the coming decades. If the need does not exist it is difficult, if not impossible, to use the funds to a more useful cause because it does not fit the terms of the initial gift. Therefore, the organization has to hold on to frozen funds.

There are ways to reduce the problems described with a perpetual endowment. The first way to do this is by designating a general use for the endowment instead of a particular activity. This allows for the congregation or organization to determine the best use of the money within broader boundaries. The second way to ensure the endowment is to make sure that some the interest each year is being put back into the capital, so that it has room to grow with inflation. The third way to safeguard the fund is to have a clause in the terms that allows for the termination of the fund if it cannot support the activity or if it is not longer required for the organization.

A time-limited endowment is a different model for endowments. It has grown more popular in recent decades. This type of endowment usually lasts between 18-36 years. This allows for all of the interest to be used for the program and the person handling the account to use some from the capital for the program to get the most for their money. This type of endowment is ideal for a smaller gift because it allows for the donor to provide more from their donation.

Endowments are treasured gifts in a congregation or organization. They provide stability and comfort for programs and other expenditures for a long period of time, if handled in a smart way. To read more about endowments please look to Ensuring the Future by Lorne S. Miller, which provides more wisdom in the area of Jewish endowments.

(Developed By: Lisa Delson, HUC-JIR, Cincinnati)