Once a decision to establish an endowment is made, many charities look to their local Community Foundation as the vehicle of choice to hold and manage their endowment in perpetuity.
A number of factors influence the decision of charities to use their Community Foundation, rather than establishing an internal mechanism such as a foundation. They include:
1. Organizations recognize the skill, expertise and resource required to manage a permanent endowment. Since the Niagara Community Foundation is in the full-time business of building a permanent endowment for the community, it has the necessary resource requirements in place. These resources include:
- An Investment Advisory Committee that recommends a financial investment policy to the Niagara Community Foundation's Board of Directors;
- Professional investment counsel who is monitored and evaluated by the Investment Advisory Committee
2. Recent amendments to the Trustee Act (Ontario) have presented substantial change in law with respect to trustees' authority to invest trust assets and the trustees' fiduciary responsibilities. More and more boards recognize the significance of these obligations and are turning to their local Community Foundation as an alternative. The ability to establish a fund with the Community Foundation and achieve a greater return on investment over time due to the diversification and size of the portfolio has impressed many boards.
3. Both boards and staff of charities have been relieved to focus solely on building and strengthening their core business and to let Niagara Community Foundation administer their endowment.
4. Cost efficiencies are achieved by having all funds at Niagara Community Foundation share in the cost of an investment counsel, custodian, lawyers, auditors, staff expertise and general overhead.
5. Each year, income earned on the organization's fund is available to be used by the charity as it determines or is reinvested in the capital.
6. The Foundation has the technical expertise and the facility to accept gifts in a timely, cost-effective manner on behalf of the agency, e.g., transfer of shares, etc.
7. Because the fund is held as a fund of the Community Foundation, it will be publicized in Community Foundation materials and could attract new donors.
FREQUENTLY ASKED QUESTIONS
What is the legal definition of 'endowment'?
There is no legal definition. The commonly accepted meaning for 'endowment' is a fund which is kept in perpetuity to provide interest and dividend earnings for the benefit of a charitable cause.
Should all organizations have an endowment?
No. Organizations that are formed in support of short-term causes or particular events do not need endowments. Similarly, organizations which are in financial crisis, do not have a donor base, or lack any credible record of accomplishments are unlikely candidates for an endowment. With these exceptions, however, most other organizations will benefit from an endowment fund and should have one.
How does endowment fit into an overall organizational financial plan?
To be healthy and stable, an organization needs to meet its current operating budget with specific strategies. In addition, an organization should have an operating reserve account that can cover its expenses in an emergency. Then, based on some fundamental criteria for definition of endowment donors, it is ready to consider endowment fundraising as an option. Endowment fund income can in turn, be used for annual operating costs, thereby reducing stress on the organization and freeing up resources for new programs.
What's the difference between an endowment and an operating reserve?
An operating reserve is a board-designated fund that may act like an endowment because an organization chooses not to touch the capital. Capital is, in fact, available to meet emergency needs should the board choose to expend it. Usually operating reserves are managed and invested by the organization's staff and board. An endowment, on the other hand, is a fund which by definition the capital cannot be invaded. Often this is best accomplished only by placing the endowment outside the reach of the organization.
Will having an endowment conflict with current donor's giving?
Absolutely not. In fact, the addition of an endowment program when presented to your current donors will encourage them, knowing they are dealing with an organization with the foresight to plan to stabilize its financial future. Experience demonstrates that dedicated donors do not choose among ways to support their favourite charities, but frequently participate in all of them.
Who gives to endowments?
The best candidates are current board members, committee members, friends of the organization and previous donors. Approaching them for consideration of endowment giving, either current cash gifts or planned gifts, can successfully raise endowment support.
What happens if we have an emergency and need the endowment money?
In a true endowment the emergency must be solved with other financial resources. If it is a board designated endowment, there are many examples of 'borrowing' and other creative accounting techniques which invade principal with full intention of repaying it but which most often do not work. Endowment capital should not be touched regardless of the depth of the emergency.
What happens to our endowment if our organization goes out of existence?
For endowments held and managed by the board of the organization, it is unlikely that if the organization fails the endowment will survive. For endowments which are inaccessible because they are held in trust through an independent charitable foundation, such as the Niagara Community Foundation, the assets will be re-directed to the most similar cause available.
Should we set up our own foundation to hold the endowment?
The creation of a new charitable organization to hold an endowment appears to solve the problem, but in fact does not provide any greater insurance for the protection of capital than board designation. Directors of separate foundations may invade corpus when emergencies arise. In addition, the costs involved in maintaining two separate charitable entities may erode a good portion of the earnings that would otherwise be directed toward the charitable activity.
Is an endowment program the same as a planned giving program?
Many use the terms interchangeably, but they really are two separate things. Endowment is the pot of money you build as a nest egg for your organization. Many gifts that go into the pot will be planned gifts, loosely defined as out-of-the-ordinary gifts that require careful estate and financial planning on the part of the donor.
What's the down-side?
The fund is non-encroachable by the charity, even during times of extreme financial need. There may be years in which the investment earnings are insufficient to make the annual distribution. In this instance the Foundation may be able to draw on any undistributed earnings from previous years.
Charities with endowments at Foundation
Below is a list of organizations that have opened endowment funds at the foundation, with links to their websites.
Bert Miller Nature Club www.bertmillernatureclub.org
Big Brothers Big Sisters
Canadian Federation of University Women - St. Catharines www.cfuwstcatharines.org
Community Care, St. Catharines and Thorold www.communitycarestca.ca
Community Living St. Catharines www.clstcatharines.ca
Education Foundation of Niagara www.efnonline.ca
Fort Erie Conservation Club www.forterieconservationclub.ca
Friends of Fort Erie's Creeks www.friendsofforteriescreeks.com
Hospice Niagara www.hospiceniagara.ca
Land Care Niagara www.landcareniagara.com
Mayholme Foundation www.mayholme.ca
McNally House Hospice www.efnonline.ca
Mount Carmel Spiritual Centre www.carmelniagara.com/Client/default.aspx
Niagara Entrepreneur of the Year Awards www.niagaraentrepreneur.com
Niagara Falls Big Brothers Big Sisters www.niagarafallsmentors.org
Niagara Falls Humane Society Shelter www.niagarafallshumanesociety.com
Niagara Land Trust Foundation www.niagaralandtrust.com
Niagara on the Lake Library www.notlpubliclibrary.org
Niagara Peninsula Conservation Foundation www.npca.ca/foundation
Niagara Region Sexual Assault Centre -CARSA www.sexualassaultniagara.org
Niagara Survivor Services Fund www.sexualassaultniagara.org
Salvation Army www.salvationarmy.ca
Upper Canada Lodge Constable Family Endowment Fund
Welland Hospital Foundation www.wellandhospitalfoundation.com
YWCA of Niagara www.ywcaniagara.org