If your finances have been stable over the last three years, having an endowment – funds that are set aside to produce investment income for the long term – may allow your organization to start a planned giving program – now often called a “Legacy Giving Program”. Prospective donors thinking about leaving a portion of their estate to your group, for instance, want to know how you will handle their gift – possibly the largest gift they will ever make. I recently heard a donor say, “I want to know that the organization will not need to use my bequest all in one year.” In other words, they want you to have a long-term plan for handling these gifts, and an endowment is usually evidence of having a plan.

However, your endowment needs to have well-thought-out policies – gift acceptance, pay-out assumptions, and investment policies at a minimum. Additionally, you need to have thought through the conditions under which your board would ever authorize distributing any part of the capital portion of an endowment – usually verboten in an endowment, but sometimes critical to the continuing operation of the nonprofit organization.

Having an endowment is a mild plus in fundraising from foundations and corporations, but it is with individuals and especially legacy giving where the endowment really makes a difference.