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The Virtual Endowment

Posted June 2020

Perhaps you would like to establish an endowed fund with our organization and have the satisfaction of seeing the results. However, you have hesitated to transfer capital that you might need if your circumstances should change. One possibility is to establish the endowment funded with a bequest or some other deferred gift arrangement. Another possibility is to create a “virtual endowment” now.

Suppose, for example, that Linda would like to ensure that $4,000 to $5,000 per year would be available in perpetuity for the purposes of our organization. Because many endowments distribute about 4% to 5% of the value of endowment principal each year, a gift of approximately $100,000 would be required if the endowment were to be fully funded.

Instead of transferring a lump sum, Linda might agree to contribute $4,000 to $5,000 each year and pledge $100,000 to be paid either via a bequest or later in life when personal security is no longer a concern. Meanwhile, Linda would retain full control of the $100,000 and receive the earnings on it. She would, in fact, make her annual contributions with those earnings, and those contributions would be fully deductible if she itemizes on her tax return. If she ever needed all of the income from her investments, she could suspend the annual contributions and use the income for necessary purposes.

This arrangement functions like a fully funded endowment. The only difference is that Linda, not our organization, holds the principal until she is ready to release it. The virtual endowment could bear her name or any other name of her choice; she could choose to honor a loved one. And she could specify the purpose for the funds, consistent with our policies. Each year she would receive reports on how the money had been expended and be recognized among endowment donors.

For information about establishing any form of endowment—fully funded or virtual—please contact us.

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