Understanding the types of endowments

How to maximize your impact through long-term support.

Giving can offer a great sense of fulfillment, and a way to make a difference for others while supporting causes you’re passionate about. Endowments are among the many ways your philanthropy can take shape – they are funds or property that are permanently invested for the purpose of generating income for a specific organization or cause.

Typically created through donations from individuals, corporations or institutions, endowments are managed by a board of trustees responsible for ensuring the sustainability and growth of the endowment. Giving to an organization through the establishment of an endowment allows you to create a legacy of giving that enables an organization or institution do its vital work well into the future.

Endowments have become an important funding mechanism especially for universities and other educational institutions, cultural institutions such as museums and libraries, and service organizations like hospitals. With most endowments, the principal amount is maintained while the income generated through the fund’s growth is used by the organization, though there are differences between types of endowments.

Each type of endowment has its own characteristics and objectives. Understanding the differences will help you to make informed decisions about how to maximize your impact and support the causes you care about most.

Unrestricted endowments

Unrestricted endowments are donated to an organization without any specific purpose or restrictions. The organization can use the funds as it deems appropriate, from funding general operations to supporting specific programs. Unrestricted endowments provide the organization receiving the funds with maximum flexibility in determining how to use the funds.

Restricted endowments

Restricted endowments are donated to an organization for a specific purpose, such as funding a scholarship program or supporting a particular research project. The organization is legally obligated to use the funds only for the designated purpose. Restricted endowments provide you with the assurance your donation will be used for a specific cause or program.

Quasi-endowments

Quasi-endowments are funds that are set aside by an organization for a specific purpose but are not legally designated as endowments. They are usually established using surplus funds or reserves that the organization does not need for immediate operations. Quasi-endowments provide organizations with a pool of funds that can be invested to generate income while still allowing the organization to access the principal if needed.

Term endowments

Term endowments are funds that are donated to an organization for a specific period, after which the funds are either returned to the donor or transferred to the organization’s general fund. Term endowments are typically used to fund specific programs or initiatives that have a defined timeline.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.