Nonprofit Endowment Building FAQs

What is a nonprofit endowment  fund?
A nonprofit endowment is a long term fund held and managed by The Community Foundation on behalf of a nonprofit organization. The commonly accepted definition for permanent endowment is a fund which is kept in perpetuity where earnings provide regular operating support or support for a specific project for the benefit of the organization. The very word "endowment" encourages donors to believe that the fund is intended to exist forever.

Why build a permanent endowment?
Building a permanent endowment provides organizations with future stability and a foundation from which to grow, not contingent on the success of current or future fundraising efforts. Having an endowment fund provides a constant source of annual income while demonstrating security and long-range financial planning.

What's the difference between an endowment and an operating reserve?
An operating reserve is a board designated fund which may act like an endowment because an organization chooses not to touch the principal.  Principal is, in fact, available to meet emergency needs should the board choose to use it. 

What are the benefits of placing assets with the Community Foundation?

The Community Foundation is a nonprofit organization and our only business is philanthropy.  The advantages of working with the Community Foundation include:

  • Participation in a diversified investment portfolio with total assets under management in excess of $148 million (as of June 30, 2015)
  • Investment oversight from a dedicated investment committee comprised of financial and business professionals who have extensive experience in the investment and financial services industries
  • Investment advisory and monitoring services from Morgan Stanley, one of the nation’s leading independent investment consultants

What is the minimum for establishing a nonprofit endowment?
There is no minimum for this type of fund.  Subsequent gifts can be in any amount.

What are the fees and what do they cover?
There is no fee to establish a fund and a nominal fee for managing the fund. The current administration fee is 1% of the fair market value of the fund. 

How much will be distributed from the fund each year?
The spending policy is 4.25% of the average asset value over the preceding twelve quarters. Distributions are made annually.  Organizations can elect to leave the annual distribution amount invested to be used at a future date.

Who owns the fund and how are the funds accounted for?
Nonprofit funds are legally owned by the Community Foundation and are accounted for in accordance with the Statement of Financial Accounting Standards No. 136. To comply with this standard, the community foundation records an offsetting liability for the fair market value of the agency nonprofit funds. Organizations report the fair market value of the fund as a beneficial interest in an asset held by the community foundation.

Does our organization need to have an investment policy? What if our board of directors has already adopted one?
No. Organizations with funds managed by the Community Foundation do not need an investment policy. As a component fund of the community foundation, these funds are subject to our Statement of Investment Objectives and Policies.

Are there any additional services we receive?

Yes. In addition to investment management, nonprofit fund holders benefit from the following services:

  • Clear and concise reporting of all financial activity
  • Online access to fund statements
  • Yearly meeting by foundation staff with board of directors and/or committees
  • Processing gifts of securities and tangible property
  • Planned giving expertise

What happens to our endowment at the Community Foundation if our organization goes out of existence?
In order to preserve donor intent, the charitable earnings will be redirected by the Community Foundation’s Board of Directors to the most similar cause that can be found.

Why would a donor choose to leave money in their will or invest in an endowment for local organizations through the Community Foundation rather than giving directly to the local organization?
Donors may feel more comfortable leaving money for the benefit of their favorite organizations through the Community Foundation. The first community foundation was established in 1914, and now there are over 700 nationwide that share the same mission – to preserve community assets for the purposes designated by donors. Locally, the Community Foundation for Palm Beach and Martin Counties has a 43-year history of meeting donors’ wishes and building long-term, revenue producing endowment funds t0 benefit the community forever.

Why do donors decide to make major gifts through the Community Foundation instead of making a gift directly to an organization?

There are 3 main reasons that individuals make major gifts to organizations:

  1. They believe the organization is strong, viable and will be around for 25 or more years.
  2. They believe the organization has the ability to manage and administer a very large contribution.
  3. They believe deeply in the mission of the organization.

Donors may feel more comfortable using the community foundation because of its history of successfully managing long-term investments and for the greater assurance that principal will not be invaded by the agency.

What are some of the considerations before deciding to partner with the Community Foundation?
Considerations include the size of the annual operating budget, scope of the mission, capacity of staff and Board, and age of the organization. Many organizations find it advantageous to work with the Community Foundation because they benefit from the instant credibility that comes with partnering with one of the area’s most respected community organizations, where major gifts are stewarded regularly and investments produce solid returns.

In the case of an emergency, can we get our money back?
Endowment funds provide a permanent source of revenue. Funds should not be committed to endowment that will be needed for operating expenses.

For more information and a list of local agencies that have an endowment with the Community Foundation, click HERE