Endowments 101

How endowments work at UChicago.

Denise Chan Gans, senior director in the Office of Gift Planning, provides answers.

What is an endowment?
An endowment is created when a donor makes a gift and instructs the University to spend only the payout on its investment. The principal may appreciate over time, but it cannot be invaded or spent down. As such, an endowment fund exists in perpetuity to support the purpose designated by the donor. An example is an endowed scholarship fund.

How does an endowment benefit the University—and me?
The fundamental purpose of the University’s endowed funds is to support its core academic mission by supplying a steady source of income to every corner of the University. For donors, it creates a lasting legacy and ensures that the designated purpose of the donor will be supported in perpetuity. Family members can add to an endowment fund in honor of a donor.

What is the minimum amount required to create an endowment? When are the payments due?
At UChicago, the minimum for an endowment is $100,000. It can be paid over a period of years (no more than five), and usually the payout will begin supporting the designated purpose when the endowment is fully funded. For example, a professorship, which requires an endowment of $3.5 million, will be filled when that amount is received in full.

Can I establish an endowed fund by bequest?
Yes. Many donors make an ultimate gift to the University by providing for the creation of an endowed fund in their estate plans. By law, endowment funds can be created only at the direction of the donor.

What is a flexible endowment?
A flexible endowment is a binding commitment to give annual donations equivalent to the payout from an endowment fund, and to pay off the principal at a later date (no later than upon the donor’s death). A flexible endowment keeps the principal in the donor’s own control and provides the University with the current expendable payout and support it needs. Flexible endowments are best suited for endowment gifts of $1 million or more.

Planning tip: Endow your annual gift. For example, if you make an annual gift of $5,000 a year, include a bequest in your estate plans to establish a $100,000 endowment fund that will generate a $5,000 payout in perpetuity. If your annual gift is below this threshold, then make a gift to a pooled endowment fund that equals 20 times your annual gift.