Endowment Funds
An endowment fund is a fund established by a charitable organization as a permanent fund to ensure an ongoing source of support for their programs and operations. Canada Revenue Agency (CRA) registered charities or other organizations may be interested in establishing an endowment fund.
The organization is a receptacle for gifts given for a designated period of time or to be held in perpetuity. Typically, the capital of the endowment remains untouched in perpetuity, and only the income from the fund is used to fund ongoing programs and services. The fund could be made up of a pool of unrestricted dollars (i.e. general endowments), or as a number of individually named funds restricted for certain purposes.
Investment with a financial institution
Description
Any registered charity or non-profit organization may contact a financial institution in order to establish an investment plan that would secure a sum of money for their organization. For example a Guaranteed Investment Contract (GIC).
Pros
- Any non-profit organization may establish this kind of investment option.
- There is little or no administrative fee (depending on the financial institution).
- The capital can be either protected or spent.
- Organizations may be viewed positively by potential donors by demonstrating stability and planning for the future.
Cons
- There are reporting requirements and disbursement requirements by Canada Revenue Agency (CRA) on investments once the amount reaches a certain level.
- The onus and liability on investing prudentially is on the charity (or non-profit organization).
For more information, please contact a financial institution / investment manager in your area and Canada Revenue Agency (CRA).
Establish a foundation to host endowments
Description
A registered charity may wish to establish a foundation to host an endowment fund. They would first need to establish their own foundation with a separate Board of Directors from their existing charity, with a separate business number and charitable tax number from Canada Revenue Agency (CRA).
The organization needs to decide whether they will manage the fund directly or hire professional investment managers and monitor their performance.
Pros
- Donations may be made directly to the fund or through the newly established foundation.
- The organization is managing its own funds and it is kept separate from the operational budget.
- Organizations may be viewed positively by potential donors by demonstrating stability and planning for the future.
- Capital of investment is protected from misuse.
Cons
- Legal costs to establish a separate or independent foundation and obtain charitable status.
- There are reporting and regulatory requirements.
- The organization is responsible for administration of the fund – record keeping, accounting etc.
- The onus on investing prudentially is on the charity in cooperation with their investor.
- There is an administration fee for investing with an investment manager. For smaller amounts the fees are usually higher.
For more information, please contact a financial institution / investment manager in your area and Canada Revenue Agency (CRA).
Establish an endowment fund through a community foundation
Description
A registered charity or organization may establish an endowment fund through a community foundation. In order to establish this kind of fund, the registered charity would contact their local community foundation.
The organization transfers ownership of the fund to the community foundation under agreement and the income is distributed to the organization.
Pros
- By placing a fund into the community foundation investment pool, the organization increases its opportunities for maximizing income while reducing investment cost.
- Donations may be made through the community foundation or the charity.
- Administration is the responsibility of the community foundation. Fund is removed from the organization’s financial statements.
- By transferring ownership to the community foundation, the fund is protected from encroachment by future organization boards.
- Organizations may be viewed positively by potential donors by demonstrating stability and planning for the future.
Cons
- The fund is not directly owned by the organization.
- There is an administration fee, usually on par or slightly lower than through an investment company.
- Named endowments (versus general endowments) may require a minimum donation.
For more information, please contact your local Community Foundation.
- As part of its 25th anniversary celebrations, the Saint John Human Development Council established an agency endowment fund with the Greater Saint John Community Foundation in 2004 to assist with the ongoing administration costs of the social planning agency.
- Fonds de l’entraide de la péninsule acadienne was established by La Fondation communautaire de la Péninsule acadienne with the objective to offer partial financial support to people in the Acadian Peninsula who need medical treatment or care that is not available in northeastern New Brunswick.
- Seek Board authorization to hold endowment funds.
- Establish Terms of Reference for each type of fund the organization wishes to establish.
- Determine the long term and short term financial goals on investment in the endowment.
- Agree on the preferred option for investing in an endowment.