Nonprofit organizations and educational institutions occasionally change their mission or cease operations. Establishing an endowed fund with a community foundation is one strategy donors can implement to ensure their charitable dollars support the causes they love in perpetuity.
Headlines about college closures, budget deficits, and declining enrollment have become increasingly common. For donors who care deeply about supporting higher education, these stories raise an important question: How can you ensure your charitable gift continues to achieve its intended purpose if the institution you support faces financial challenges or even closes its doors?
In some cases, institutions facing serious financial pressure have sought access to restricted endowment funds to address immediate operational needs. Some have done so with donor consent. Others have pursued legal avenues to modify donor restrictions after the donor’s death. Saint Michael’s College in Vermont, for example, sought court approval to access restricted funds during a financial crisis.
This raises the question: What does it mean for donors when an organization they support raids their endowment?
In a recent Wall Street Journal article, Joanne Florino, Philanthropy Roundtable’s Adam Meyerson Distinguished Fellow in Philanthropic Excellence, discussed the risks that arise when financially distressed colleges turn to restricted endowment funds to meet immediate financial obligations. Although doing so may seem like a short-term solution, it violates donor intent, undermines trust, and can be an early warning sign of deeper institutional decline. Florino points to a scholarship fund that was used to cover expenses at a college that ultimately closed. When the donor later attempted to have the remaining funds transferred to another school so the scholarship could continue serving students, the request was denied.
So, what can a donor do to support the nonprofit, college or university that is important to them without worrying about possible closure, reallocation of funds, or placing the burden of financial management on those organizations?
These challenges highlight the importance of careful charitable planning. Donors who wish to support a specific college, university, or nonprofit organization may want to consider structures that provide long-term protection for their charitable goals. Using a third party to invest and manage an endowment is a way to provide perpetual support for nonprofits. Funds can be managed by commercial financial institutions or a community foundation.
Community foundations across the country provide donors with ways to create endowed funds that support the organizations and causes most meaningful to them. One option is to establish an endowed fund at a community foundation and designate a college, university, or nonprofit as the annual beneficiary. This allows donors to support the organizations they love while ensuring that an independent, charitable steward manages the assets. If circumstances change, such as a merger, closure, or significant change in mission, the fund agreement provides guidance for how the donor’s charitable intent should be honored.
Donors make charitable gifts in the hope that their generosity will make a lasting impact. By working with a community foundation, donors can support the organizations and causes they care about today while creating safeguards that help ensure their charitable intent is honored for generations to come.
At Berks County Community Foundation, our mission is to promote philanthropy and improve the quality of life for the residents of Berks County. We currently steward nearly 400 charitable funds, 290 of which are endowed. Like the endowed funds we manage, the Community Foundation is built to serve the community in perpetuity. As a permanent presence in Berks County, we will continue to honor donors’ charitable wishes, adapt to the community’s evolving needs, and work every day to make Berks County a better place to live, work, and thrive.
