Endow? And How! Understanding How a Foundation Works
by
Stu Slayen | Dec 04, 2017
When you support a front-line charity – a soup kitchen, for example – the math is fairly straightforward. You donate $1,000 and the charity will spend the entire gift buying food, paying staff, and keeping the lights on. Front-line charities use your gift to deliver a service.
It’s an essential and powerful gift – don’t stop making contributions to front-line charities! That said, your gift to a front-line charity is typically spent immediately, while an endowed gift through a foundation is permanent and generates income in perpetuity for your preferred front-line charities. You might want to consider adding endowment giving to your charitable portfolio.
Foundation giving – particularly endowment giving – is growing in popularity. A public foundation is a registered charity in and of itself, and typically distributes money to qualified charitable organizations through a grants process. How foundations function is something governed by the Income Tax Act and administered by the Canada Revenue Agency. By law, the Jewish Foundation of Manitoba must distribute a minimum of 3.5% of its total endowed assets each year after expenses. The Foundation currently exceeds the minimum requirement by distributing 4.0% of its endowed assets.
“Our endowment funds are stewarded by the JFM’s Investment Committee and professional advisors,” says Ian Barnes, Chief Financial Officer of the Jewish Foundation. “Our ability to distribute grants and scholarships is highly dependent on market performance and implementing an asset mix appropriate to serve the needs of the community. An important part of our investment portfolio is that we allocate a portion to a reserve fund to maintain distribution in the event of a market downturn, much like we saw in 2008. We’re fortunate that we have never missed a year of distribution, even when the market soured.”
So, going back to our example of the soup kitchen. If you put $1,000 in the organization’s endowment fund, the organization would get $40 every year (assuming the rate remains at 4.0%) while the initial $1,000 remains untouched. Yes, $40 is less than $1,000, but that $40 goes to the charity every year, forever, even after you are gone.
“When donors endow their giving, an organization can plan more effectively for the long term,” adds Barnes. “People inclined to be charitable should never stop donating directly to important organizations, but by adding endowment giving through the Jewish Foundation, you can help keep the organizations you love stable and healthy.”