The magic of endowments

One of your client's first decisions when creating a fund is whether to make it last forever. That's an endowment.

Meet Harry and Martha Lee McCoy and learn why an endowment to benefit the community they love makes this attorney and his wife happy.

An endowment has many advantages. It will:

  • Provide dependable, perpetual income to your client's chosen cause or nonprofit – be it the arts, a house of worship, an alma mater or whichever cause he or she most cares about
  • Carry on the family’s name – and legacy – forever
  • Allow successive generations to continue family giving traditions

An endowment – depending on its size, or combined with others – can make all the difference to a nonprofit's work. With some guaranteed income every year, it can innovate, take risks, do what needs to be done. That's a big part of the magic.

An endowment also allows a scholarship fund to keep sending deserving students to college, forever.

Or an endowment can promise dedicated funds to a field of interest your client names, from anatomy to zoos.

Thoughtful spending, prudent investment

The other part of the magic is a "Spending Rule" that would have worked through the Great Depression and did work through the 2008 Recession. 

In the 1980s and 1990s, economists reviewed stock market returns dating back to before the 1920s. They determined this remarkable finding: if a college, nonprofit, trust fund, or foundation limited its spending from 4.5 to 6 percent of their endowment’s corpus, the endowment would

  1. ultimately pay out more than the original gift
  2. would grow in size, above and beyond the rate of inflation
  3. would survive all bear markets, meaning the recipient would continue to receive a steady grant amount.

The formula assumes that any additional investment earnings above the 4.5-6% remain in the endowment. The extra income makes up for years when the market under performs.

Check out this planned giving calculator to see the impact of charitable gifts

Want a real-life example? Read how the endowment of the late Virginian-Pilot Publisher Perry Morgan and his wife Bunny changes lives each year and will do that forever.