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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 endowment 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. 

Endowment guidelines 

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 information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This information was developed by Redfern Media, an independent third party. Expressions of opinion are as of this date and are subject to change without notice.  While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.