Establishing Endowments

Q. I am researching the pros and cons of endowments, including how to set them up and use them efficiently. Can you help me by providing a list of books or other resources on this topic?

A.Establishing an endowment is a relatively simple procedure, but it’s definitely a good idea to do your homework, because an endowment isn’t right for every organization, says Scott Sheldon, director of external relations at Arizona State University’s College of Extended Education, in Phoenix. For instance, he says, “it is possible that too many donors may choose to support endowments to the detriment of ongoing annual operating support that the agency needs to keep operations running.” Also, he points out, since an endowment is investment, income from the investment may not keep up with inflation, or increased expenses. This is a particular concern in these days of uncertainty in the stock market, says Lawrence Jones, vice president of philanthropic services at Wilmington Trust Company, a bank in Wilmington, Del.

Of course, endowments offer many benefits as well, says Mr. Sheldon, such as the promise of financial stability. “Funding an endowment is more cost effective than seeking an annual gift each year from the same donor,” he says. “This also allows the agency’s resources to be used more efficiently for programs than on continuous fund raising,” he says, adding that endowments may enable charities to attract larger gifts, particularly through bequests, than they do through annual appeals.

While you’re seeking resources on endowments, you will also find lots of information about planned giving, the means through which individuals create endowments or make other substantial gifts to charities. Given the enormous amount of wealth that is expected to change hands happen over the next few years, as the parents of the baby-boom generation pass on their worldly assets to their children, nonprofit organizations can expect to spend a lot more time thinking about planned giving, says Joel Weiss, former supervisor of the endowment department at the Jewish Federation of Springfield (Mass.), and now a fund-raising consultant in Longmeadow, Mass. To learn more, he suggests checking out the Foundation Center’s list of resources on planned giving. You can also sign up for a free e-mail discussion group dedicated to planned-giving issues sponsored by Yahoo Groups and started by J.J. MacNab, an independent financial planner in Bethesda, Md. To join, send a blank e-mail message to plannedgiving-subscribe@yahoogroups.com. Ms. MacNab says she currently has more than 700 subscribers, including many planned-giving officers from nonprofit groups as well as lawyers who work for charities and donors, and that the subjects taken up by the participants range from the most basic to the most complex. Both Mr. Weiss and Mr. Sheldon recommend the book Effective Fund-Raising Management, by Kathleen Kelly (Lawrence Erlbaum Associates, 1997, $65), which includes several sections devoted to fund-raising for endowments. Mr. Sheldon also recommends Building an Endowment: Right From the Start, by Lynda S. Moerschbaecher (Precept, 2001, $40).

On the Web, consult your state’s nonprofit association, says Mr. Jones. Most states have specific laws pertaining to endowments. The Council on Foundations, in Washington, also offers a few publications that touch on aspects of endowments. Search the publications catalog using the keywords “endowment” and “foundation” at the Web site, advises Janne Gallagher, deputy general counsel for the organization.