Financial planning and estate planning are generally focused on maintaining your own financial stability, preparing for retirement, and ensuring that your intended heirs are taken care of after you have passed away. However, many people are also interested in making a difference in society and may look to potentially making charitable contributions to a cause they believe in. One common charitable contribution that people make is to a university endowment.
What is a university endowment?
University endowments are funds which pool money provided by individuals and various types of entities for the purpose of supporting specific academic institutions. Usually, charitable donations are the primary source of money for university endowment funds.
How are university endorsement funds used?
Funds donated to university endowment funds can be used to support teaching services, research and public services conducted by colleges and universities. Each endowment will have a legal structure that specifies for what purposes academic institutions can use the funds allocated to them.
Along with a general-purpose university endowment, many universities and colleges will have specialized endowment funds that aim to provide funding for specific purposes. These may include endowments specifically for professorships, fellowships, and scholarships.
Sometimes university endowments will have guidelines limiting how much of the endowment funds can be allocated. For many academic institutions this limit is 5% of the total value of the endowment fund. Usually, endowment funds in the U.S. are essential to the financial stability of beneficiary educational institutions.
Types of university endowments
The four different types of university endowments are unrestricted, term, quasi and restricted. Term endowments limit the spending of the principal of the donated funds to only after a specified period of time or following a specific event. Unrestricted endowments give the academic institution full discretion as to how and when the principal funds are allocated.
A quasi-endowment limits principal funds to be used for a specific purpose. Restricted endowments require the principal of the donated funds to remain in the fund permanently while investment earnings are spent in accordance with the fund’s guidelines.
Why donate to a university endowment?
One of the benefits of choosing to donate to a university endowment is that you will be able to deduct the donation from your taxes. Also, if the underlying assets held in the endowment earn interest or dividends the endowment fund will not be charged tax on these gains as long as the university is a public school which means it is a tax-exempt organization.
Another reason you may choose to donate to a university endowment is to help support public education since people having access to knowledge is one of the cornerstones to a working democracy. Some may have an emotional affinity to their alma mater and want to continue supporting the university they had attended when they were younger.
Integrating with a complete financial plan
Your donation to a university endowment should be a part of a comprehensive personal finance strategy. There are many different factors to weigh when developing your financial plan. Your financial plan should be customized to your specific situation, ideally with the help of a professional and experienced financial advisor.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Independent Financial Services and First National Bank of Pasco and not necessarily those of Raymond James.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.