Tuesday, July 22, at 12 noon, U.S. Eastern time

Charities are increasingly creating endowments so they can guarantee their long-term financial health, especially in tough economic times.

But for many charities, especially small ones with limited budgets, starting and building an endowment is a challenge. Some community foundations are creating incentive programs to help small nonprofit groups overcome these challenges. But many groups get little help in creating and managing endowments.

Related Article

• Making Dollars and Sense: Creating an Endowment Requires Planning and Patience (12/11/2003)

The Guest

Lisa Farber Miller is a senior program officer at the Rose Community Foundation, in Denver. In that position, Ms. Miller has helped 19 charities in the Denver metropolitan area create or expand their endowments.

Kimberly Lauth runs Nonprofit Outfitters, Community Benefit Consulting, a Knoxville, Tenn., company that advises nonprofit groups on endowment building and other topics.

Althea Allen Ledford is the founder and chief executive officer of Founders Choice Endowments, a nonprofit organization in Inglewood, Calif., that helps charities and foundations more effectively manage their endowment funds.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Hello, and welcome to today's discussion. We're going to spend the next hour talking about endowments and we've enlisted three excellent guests to take your questions. We will focus mostly on how groups can go about starting endowment funds -- and what nonprofit groups can do to build their endowments once they are created.

Peter Panepento (Moderator):
    To ask a question, please click on the "ask a question" link on this page. For those who are new to this forum, this is a text-based discussion. There is no audio and no call-in number. This page will refresh every minute with the latest questions, answers, and comments.

Peter Panepento (Moderator):
    Ok. Let's get started ...

Question from Lesle Knop, Catholic Foundation of Northeast Kansas:
    I read in the Chronicle of Philanthropy special report (July 24, 2008, page 12) about Tulsa's recent endowment effort that gave $700,000 to 53 charities or 20 percent of what they raised in endowment gifts. Please describe the planning and budgeting that went into that effort, if you have any information. What was the time-frame of the entire effort and how was it promoted?

Lisa Farber Miller:
    I'm sorry I do not know the specifics of the Tulsa Endowment Challenge, but I do know how we planned and paid for our Live On: Build Your Jewish Legacy program. You can get all the details on our website: http://www.liveonlegacy.org. We engaged 28 schools, synagogues, and agencies in a two-year program to learn how to solicit donors for bequests to build their endowments. We focused on bequests because the majority of planned gifts are bequests. Conventional endowment wisdom tells us that 80% of endowment growth comes from matured bequests. We spent about 6 months planning our program and $820,000, which includes $18,000 grants for each of the 28 organizations. We received a spectacular rate of return: the 28 organizations completed 1,516 solicitations resulting in an estimated $36.6 million in planned gifts. In addition, there are another 200 pending gifts in the pipeline. 134 volunteer solicitors were trained in 16 different sessions we provided. This was accomplished in 27 months of work by the agencies. 20 of these agencies are continuing their work with us in 2008 and 2009.

Peter Panepento (Moderator):
    We've created a link for more information on the Rose Community Foundation's program. It should help frame the conversation. You can check it out here: http://philanthropy.com/documents/v20/i19/bequest_plan_outline.pdf

Question from Bob, trustee, museum:
    What is the viability of taking 5-15% of all unrestricted gifts for building an endowment?

Does it work? What are the issues if any?

Kimberly Lauth:
    As long as the organization understands and respects donor intent this could be a very pro-active way to build endowment.

The organizations I work with typically use unrestricted funds for operations and programs and focus on securing planned gifts or endowment specific gifts to fund endoment.

However, if you are fully funded in operations/programming and/or willing to include the 5-15% in your income budget goals for the year there is no reason for this not to work well.

Question from Tiny Nonprofit:
    Our nonprofit has an operating budget of about $300,000. My question: is there a "tipping point" at which it makes sense to start an endowment, vs. focusing on growing the nonprofit?

Althea Allen Ledford:
    Think of an endowment as a retirement plan for an organization. There will always be current expenses to pay but creating new ways to fund an endowment separate from your current operating budget is the key. There are several fun exciting ways to do it. It's too much information to post right now but I will leave my information to forward some ideas to you Good luck!

Question from Jamie Revord, The Rotary Foundation:
     At our organization, when possible, gift agreements are established to document how an endowed fund created by a donor‚Äôs contribution will be administered. An indemnification paragraph is included that states that in the event the program the donor has chosen to support no longer exists, the Trustees reserve the right to redesignate the gift to another program. When such a paragraph is contained in a gift agreement, and the donor passes away, is it still necessary for the charity to secure permission from the Attorney General in order to use the earnings for a different program? Or, is the purpose of the paragraph to eliminate the need for this step in the event that a particular program is no longer needed in the future?

Kimberly Lauth:
    It seems like this would be a great question to seek legal advice on. My background is in fundraising and marketing endowment. Perhaps someone else could chime in on this one?

Question from Jonathan Bonk -- via Philanthropy Today:
    I direct a religious non-profit founded in 1922 to provide renewal (professional, physical, intellectual)for Christian leaders and academics from around the world. Our programs are dynamic and growing, with more demand for our services than we are able to manage. We must double the size of our endowment. Since our alumni (approx 80,000) are relatively poor, and live outside of North America or Europe, this is a challenge. (www.omsc.org) Where does one begin? We have a highly reputable academic publication, an artist in residence program, and a multi-lingual on-line Africa biography project (www.dacb.org) Thanks! Jonathan Bonk

Lisa Farber Miller:
    The beauty of endowment work is that donors do not have to be wealthy to leave significant bequests after their lifetime. That is why a bequest solicitation is one of the easiest to make: you are not asking people to part with cash today. Where do you begin? My advice is to take the time to plan first. Go to this link http://philanthropy.com/documents/v20/i19/bequest_plan_outline.pdf and download our Bequest Plan. If you follow the instructions, you can develop a fool-proof plan of action. We've found that donors of all ages will make bequests, although middle-aged, empty-nester adults are the best prospects. The average age of making a first bequest is 49. We've also learned that bequests are a very personal kind of giving. The most successful organizations in our Live On campaign drew on long-term relationships with donors. You need to know that this is an extended process and the relationships you develop now with donors will result in bequests, but it can take longer (up to 24 months) to close a gift. Because of the importance of personal relationships, the most effective solicitations are in-person. You already have a key ingredient for success: your religious orientation. We've found here that our synagogues were among the most successful in soliciting donors for bequests. Their donors believe in their mission and want to leave a legacy to ensure their future sustainability.

Question from K. Stewart, consultant:
    What is the best way to determine the size of the endowment needed if I want to use the yearly interest earned to cover the charity's yearly budget? In other words, what is the guideline to project the interest earned on the endowment, so I can determine that it will meet the operating budget's needs.

I've heard that a 7% ROI is a good benchmark (example: a $1 million endowment will earn a yearly 7% interest of $70,000 which will be used to operate the nonprofit), although when the economy is strong, I've read that some endowments can earn 15% yearly interest or more. Thank you.

Althea Allen Ledford:
    It's best to pick a conservative or at best a mid point interest rate.

You should do a financial plan for your organization which will consider many other variables beyond money. For example there is a cost of living increase to your program. Which means the cost of doing business will or should increase maybe 3.75% or more a year. When times are hard "people" tend to give less to charities. We do financial plans for organizations to explore a plan a,b c etc. In summary, your endowment's interest earning will offset a moving target. But it's far better then being blindsided and unprepared. The fact that your thinking along these lines is fabulous!! your halfway there. Last point. How big your endowment should be- Always ask for more money. Think of new reasons to ask for more endowment money to any and everybody. Your using it to help people.

Question from Dorcie Dvarishkis -- via Philanthropy Today:
    I've just begun work at a health-care foundation where growth of both unrestricted and a few programmatic endowment funds will be one of my fund raising priorities. I would love to see some sample endowment case statements that you have found particularly effective as I work to strengthen our case for support. Thank you for sharing any links or documents that you can.

Kimberly Lauth:
    Great question! The National Committee on Planned Giving (www.ncpg.org) will have be helpful and the Association for Healthcare Philanthropy (www.ahp.org) is a great heathcare specific resource. There are lots of great books are out there as well.

A sample case that I share with clients is http://www.seattleymca.org/files/37/Endowment%20Case%20Statement.pdf

I didn't work with this YMCA but love the simplicity of the case and the way the YMCA uses a recogntion society to market and steward endowment.

Good luck!

Question from Emily Jones Rushing -- via Philanthropy Today:
    In a time of economic crunch and so many immediate needs visible, what can endowments do to show the value of giving to a future that is unknown when so many needs are here and now? Should endowment building wait until present needs are mostly met? Or be restricted to planned giving?

Lisa Farber Miller:
    The answer to this question is from your donors. It is likely that many donors are already generously supporting your organization with cash gifts and have been doing so during good and bad economies. These long-term donors care about your organization and its long-term sustainability. They also may have personal aspirations as donors and want to leave a perpetual gift out of gratitude or for other reasons. By helping your donors leave a legacy (a planned gift)to your organization, you are enabling them to achieve their goals and at the same time ensure your organization's future. No one can predict the future, but if your organization's mission is relevant today, there are donors who will want to help you build endowment. In fact, there may be many donors who have already left you in their will. But you haven't asked them so they haven't disclosed their bequest to you. If a donor wants to leave a legacy, then I believe they should restrict it to endowment because it is the only way we can honor their intent. If the donor leaves an unrestricted bequest, then the current board of directors needs to grapple with the right balance of investing in today or saving for the future. Since bequests are often "found" or unexpected gifts, I encourage nonprofits to save and put them in an endowment. I encourage all boards to have policies about how much of unrestricted gifts go into endowment.

Question from Joe Maddalena -- via Philanthropy Today:
    What is the best way to begin to fully fund an endowment once a monetary goal has been set? Do you recommend an endowment campaign and/or directing gifts from bequests and other sources that are not restricted to the endowment?

Kimberly Lauth:
    I love the idea of directing bequests to endowment. A person who makes a bequest is really wanting to leave a legacy and using that money in endowment takes that concept to a very meaningful place.

The challenge of campaigns timing and resources. Your circle of influence - the number of donors who are really committed - is key. You need to have the number of folks needed (depending on your goal.

You can manage endowment campaigns like a traditional capital campaign. Keep in mind the number of potential donors and volunteers you will need to be successful.

You also need to be able to afford to focus volunteer resources on endowment instead of capital or annual giving for the duration of the campaign.

Question from Diana -- via Philanthropy Today:
    Our 501¬©3 has had an endowment fund account for a number of years. The Board set up a separate 501¬©3 Endowment Trust that can only support our organization, but it is a separate entity. Can you give advice as to how to present this to the public so that people are not confused as to what they are giving to?

Althea Allen Ledford:
    That's great. You're absolutely supposed to establish a parallel organization for funding. The way to market that is to present them together in your brochures etc. One organization is your operating arm and the other is the endowment arm. One addresses immediate needs for that year or special immediate fund raising programs and the other is for the perpetual funding/legacy of the organization. They work hand in hand.

Question from Martha, IJIS Institute:
    We are a noprofit funded primarily by Federal grants. We are in the planning process of attempting to diversify our funding base to non government grants because of potential funding delays and change of administration priorities. We need to build a substantial endowment to sustain us through these delays. Are there foundations that will award grant funds for this type of endowment?

Lisa Farber Miller:
    Endowments can be a piece of the fund raising pie, but it is a long-term proposition because it takes longer to solicit for endowment gifts and requires donors who have a long-term relationship with you. And then, it takes time for an endowment to earn enough investment income to produce income for you to use. Typically, endowment payout is around 5% of corpus. However, in the early years of an endowment's life, if you haven't built up investment earnings, you risk eroding the original donor principal by taking earnings to support your organization.

There are some foundations that will give grants and technical assistance and training to help organizations raise endowment funds. There are some who will also give grants for endowments, but this is not common because most foundations are endowments who spend 5% of their corpus on grant making.

Question from Tara Collins, Watershed Agricultural Council:
    Our organization is creating a sole trustee endowment for a conservation easement stewardship fund. Instead of "reinventing the wheel," can you recommend a source of templates/policies/protocols for start-up endowments to use: Purpose, Management Practices, Investment Policies and the like. Generic templates would be appreciated, however endowment templates specific to a land trust would be even better. Thanks for your time and expertise!

Kimberly Lauth:
    If your communtiy has a local community foundation they are often a fantastic resouce for this type of information. I have found that many colleges and universities have highly developed endowment programs and are willing to share.

Finally, I would recommend you contact a national organization with a similar mission and see if they are willing to help you out.

Reinventing the wheel is seldom needed in the nonprofit sector. I have found folks very willing to share information and examples! There are also some great books out there - just a search engine away!

Peter Panepento (Moderator):
    We've reached the halfway point in today's discussion and we've received some great questions. Those who have asked a question should be getting an answer soon. And those who haven't should feel free to do so before we run short on time. To do so, click on the "ask a question" link and fire away.

Comment from Anita Colley:
    Hello, I recently read an article entitled, "The Millenial Generation, The Most Generous Generation Yet." I am interested in some data and research in this topic area. Thanks. Anita

Peter Panepento (Moderator):
    Hi Anita. This is a bit off topic, but we did cover this issue in a recent discussion. You can read the transcript for more information: http://philanthropy.com/live/2008/05/millennials/

Question from Sharon Cappetta, Community Foundation for Greater New Haven:
    Did you use a readiness assessment to determine which organizations were most likely to benefit from the endowment building program? Did you find strong common characteristics among organizations that successfully participating in the matchign program?

Lisa Farber Miller:
    We did not use a readiness assessment because we wanted to be inclusive. However, we have learned a lot about which organizations succeed and factors for success. One key is leadership. If the director and a key board member or volunteer are passionate and willing to commit some time in planning and soliciting, and if there are donors who are equally passionate about the mission of the organization, then any organization can succeed. We found that even a volunteer-run agency can be equally successful as a fully staffed nonprofit. Bequest soliciting for endowments does not require a development director either. We required that all our participating agencies create a leadership team to champion the importance of endowments and solicit donors for bequests. These teams were critically important: the organizations that commited the time and energy of their leaders and who knew their donors were successful. This work is all about authentic relationships, stewarding and cultivating those relationships, and maintaining them with donors well after they've made an endowment gift. Research shows that donors who make bequests consider themselves to be your partner/investor. They demand an even higher level of communication and information.

Question from Ian, Mobilize.org:
    Do you have any advice for a fairly small national nonprofit, engaging mostly young people (under 30)? We get a lot of foundation support, and have a decent list of about 400 committed individual givers, a few of them giving quite significant amounts. Our donor base is more intergenerational - the large sums come from older donors. Where should we start? Do we focus on a specific area of the country, or a segment of our existing base? Is it a question of "if we build it...?"

Kimberly Lauth:
    It makes sense to put your intial efforts into your donors aged 50 and above - especially if you are focising on bequests or planned gifts. Focus your marketing on yout natural propsect, a dedicated donor who is at the age to start thinking about their legacy.

That being said, I believe that one of most important roles of any nonprofit is to TEACH PHILANTHROPY. Don't miss an opportunity to educate your younger donors on endowment and legacy giving.

When the time comes for them to consider a legacy gift, it will be a natural progression of their relationship with your group.

Question from Annette Ketner, University of San Diego:
    What's the best strategy to get foundations, individuals, and corporations to overcome their reluctance to give to an endowment for longterm sustainability over gifts to be used right away.

Althea Allen Ledford:
    Appeal to their ego and name something after them. Permanent recognition for larger monies. Everyone loves to get "credit" for their gift and you can recognize benchmark endowment funders through levels of recognition. We create campaigns for individual organizations based on the purpose of their fund raising. It works!

Peter Panepento (Moderator):
    As part of this discussion, I'd like to invite members of our audience about lessons they've learned in their own work. If you have a tip or story to share, feel free to send it along by clicking on the "ask a question" link. We'd love to hear from you.

Question from Amanda, nonprofit public television & Radio:
    I love all of the best practices questions. Let's try one a different way. What are some of the WORST ways to market an endowment?

Kimberly Lauth:
    Interesting quesiton. I think that any endowment marketing is likely better than none - however some strategies are much less effective.

While we should remind our donors about endowment giving at every opportunity, i.e. direct mail, website, etc. Successful endowment building is the result of a process of relationship building not just an "ask".

Successful nonprofits focus on helping donors meet community needs. We need to develop donors as our partners, not just our investors.

What I am trying to convey is, in endowment, and any fundraising, the WORST approaches seem to involve seeing your donor as a target - someone help to meet an immediate goal.

Hope this helps!

Question from R. Hanson, new community foundation:
    Great discussion!! Most non-profits struggle for funds to support today's needs (operating/program/capital). This is a whole new level of fund raising mentality. What's an example, or the essence of, a community foundation "endowment incentive plan?"

Lisa Farber Miller:
    We've found that there is magic in combining techical assistance (training and coaching), marketing to increase public awareness about the importance of legacy giving, together with incentive grants. It has also been helpful to have a cohort of grantees working at the same time. They like to learn from each other and there is a sense that all ships will rise with the tide of endowment giving. One of our original goals was to change the culture of giving in the Jewish community in Denver/Boulder because we did not have a tradition of endowment giving or bequest solicitation. By having everyone working together on this program, we were able to combine their mailing lists and do mass mailings as well as advertisements about how to leave a planned gift and how it benefits the donor and the organization.

Our grantees reported that our incentive grants (we gave $9,000 when organizations completed their Bequest Plan, and another $9,000 when they reached their solicitation goals), helped them keep motivated and working.

Question from Vjollca Shtylla, International Center for Journalists:
    I am vice president for development of a mid-size non-profit working on international media development. We are looking for help in starting an endowment campaign and would like to know if there are any resources for staff training or consulting services that you can recommend.

Althea Allen Ledford:
    You will need at least one or two dedicated individuals to be the hub of your endowment activity. Ideally, there are two types of training.

1) Standard empowerment training. This is understanding how to continually market your program. You're selling the passion and purpose of what you're doing. Secondly, you're selling the effectiveness of your program verses something else. Finally, you're creating a track record of success.

2) Expert training. Customize your organization's pitch and purpose. Be an expert on your target market which for a non profit is the people your helping.

Our organization provides that information but we can discuss later. We train via workshops, conferences or one on one.

Comment from Dorcie Dvarishkis, Community Medical Center Foundation:
    A couple of things that have worked well for several of the nonprofits here in Montana -- tapping into the resources of the local or state community foundation for endowment building staff/board training, sample policies, and endowment management; and having a trustee on your board willing to champion the endowment cause, to fellow trustees and other donors.

Question from Phyllis, Retirement Community:
    I work with our community of very savvy Seniors, who have invested in living at this community, and managed their resources very well in order to be able to live here. We started a Fund Development office a year ago and among other things, began with educating them on investment vehicles that can benefit themselves, their heirs, save taxes etc. We were also very fortunate to receive a bequest this past year that really kick-started our endowment fund. There is some skepticism re: management "listening" that needs to be overcome. I have created an advisory committee with Residents and mgmt., but would appreciate any other thoughts to begin the relationship building that will help overcome past trust issues and build the endowment.

Lisa Farber Miller:
    You are right to understand that trust is critically important to endowment givers, as it should be. They are investing with you. Ongoing communications is key. So are endowment policies and endowment donor agreements. One suggestion: have you considered partnering with your local community foundation? Many community foundations will house endowments and provide help and guidance. They could confer upon you a "seal of approval" that may be helpful in your efforts to engender confidence and trust. Many community foundations also offer sophisticated and diversified investment options and serve as your financial "back office."

Lisa Farber Miller:
    Regarding Ian, Mobilize.org question about soliciting younger donors for bequests:

Our grantees involved in Live On:Build Your Jewish Legacy found that talking to younger donors about bequests, especially young parents, was viewed as a real benefit by the donors. The solicitors discovered that many young couples had not created a will. The solicitors felt really good that they were helping young families plan for their futures by encouraging them to create a will. We had a number of young donors make bequests and purchase life insurance policies. It is important to remember that there are many other ways to leave a legacy outside of an estate or will, such as making a nonprofit the beneficiary of a retirement fund or IRA.

Question from Jo-Ann Proudian, Foundation for Accelerated Vascular Research:
    In addition to bequests, what are other ways of raising endowment money?

Althea Allen Ledford:
    We treat an organization and its purpose like a family. There are many ways to give as well as leave a legacy for the organization. My organization creates multi level giving opportunities. We use Life Insurance as a source of gifting. There are several ways this can be accomplished. However, this is a highly specialized market and you must work with a professional specialized in advanced markets to get that plan in place and the design of the program. Our organization does provide that service.

Question from Vjollca Shtylla, International Center for Journalists :
    Our organization has a number of donors who contribute regularly to our general operating funds. What is the best way to approach these same donors, who care about our organization, to contribute to an endowment in addition to their general support contribution. Or is it at all realistic to expect that they would donate to both funds?

Kimberly Lauth:
    The people who care about your group to fund today's operations are the same people who will care about your organization's future.

A few thoughts on getting started:

Make sure that all your marketing materials and appeals mention the endowment.

Start an endowment giving recognition program. Encourage folks to let you know when they have made a bequest.

ASK - sometimes I think we spend all of our time relationship building and forget that we need to actually ASK for the gift!

Question from Rich Gruber medium nonprofit:
    Should an organization have an operating reserve or at least be "in the black" before thinking about an endowment?

Lisa Farber Miller:
    Another participant asked about how to create trust so that donors will want to give to an endowment. Organizations that have persistent operating deficits do not exactly produce confidence in donors. That said, there are some donors who really like to "save the day" and be last-minute angels who rescue organizations. I certainly don't encourage this kind of philanthropy. Very few organizations we work with have operating reserves sufficient to meet their needs for working capital. I don't think the lack of an operating reserve is an impediment to donors. But having a negative fund balance and/or a deficit budget makes for a tough sell.

Question from Paola Vita, NYC Outward Bound:
    Have you had past success in launching a planned giving and endowment campaign together? If so what were the keys to that success and what were the challenges?

Althea Allen Ledford:
    We've successfully completed Planned giving and endowment campaigns by asking for a single donation and indicating that a portion of those funds are ear marked for the endowment. We've also given the donator the option of directing where they wanted the funds to go. I recommend option #1. They make a donation and leave the management of funds to the organization. It's best when they are giving out of passion and commitment for your purpose.

Keep all the information as clear and simple as possible. Confusion equals delay and that may risk a donation.

Peter Panepento (Moderator):
    I'd like to mention that Patty Stonesifer, the outgoing chief executive officer of the Bill & Melinda Gates Foundation in Seattle, has agreed to take questions next Tuesday, July 29, at noon Eastern time. You can join the discussion and submit your questions for Ms. Stonesifer at http://philanthropy.com/live/2008/07/gates_foundation/chat.php3

Question from Allen, small graduate school:
    Could you highlight some innovative endowment-building approaches being used in higher education?

In what ways are the methods of building an endowment for a university program different from those of a typical nonprofit?

Althea Allen Ledford:
    I feel endowment programs should be customized. Focusing on a traget concern or group is one way of creating a commitment to your purpose. In the areas of education, there are tons of passion and purpose to get people excited about. Personalize the university and start with the alumni. Honoring the lives of the alumni is a great way of getting them involved. People love to see their name on something.

Peter Panepento (Moderator):
    Thank you for taking the time to join us today. We are out of time. It has been a fantastic discussion, and I hope you were able to get the answers to all of your questions. I'd like to take this opportunity to formally thank all three of our guests today. I'd also like to remind all of our guests to check out http://philanthropy.com/live for transcripts of all of our past discussions and information about upcoming live events. Thanks again.