May 13, 2022

Why Every Church Needs an Endowment

Do you believe in the mission and work of your church? Would you like to help your church ensure that it can serve people for years to come? If you answered yes, then you believe in the benefits of an endowment. An endowment provides financial support that can impact your community far into the future. It can build the vitality of your church and create stronger bonds with your surrounding community through the ministries your church creates and supports.

If your church wants to discuss if this is the right time to start an endowment, contact ECF’s Endowment Management program at [email protected]

What is an Endowment, and Why Does Having an Endowment Matter?

An endowment is a long-term investment fund that provides reliable income now and in the future. Often the money for an endowment comes from a donation, but it could come when church assets are repurposed or sold. Many endowment funds are restricted in some way, but some are unrestricted. Restrictions may limit annual spending levels or permissible use.

Endowments often provide funding for expanded missional work. Sometimes they also help cover regular costs or special capital needs. An endowment fund has a stated purpose and vision with policies and procedures to sustain the fund over time. There are two types of endowment funds: true endowments, in which the use of funds is restricted by the donor’s wishes, and quasi endowments, where the Vestry or Board specifies the use of funds. In either case, an endowment is managed prudently – with careful attention to investing and spending – to provide regular income without diminishing the fund.

An endowment:

  • Provides additional support for church ministry beyond what is possible in your annual operating budget
  • Reassures donors that there is a well-managed fund for their legacy gifts
  • Lasts in perpetuity unless special spending is allowed
  • Can spark engagement within your church and in your surrounding community

An endowment is not:

  • A piggy bank or rainy-day fund – it is for the long term
  • A source of funds to cover unexpected operating shortfalls – that is the purpose of a reserve fund
  • Just for wealthy or well-resourced churches – committed donors can create an endowment with a small amount and then nurture, invest and grow it over the years

For a church, an endowment is an act of trust and an expression of belief in God’s vision for your church and your community. An endowment is also a stewardship partnership between your church and donors that ensures you have adequate resources to sustain your church’s projects and ministries.

Would an Endowment Benefit Your Church?

To determine if setting up an endowment would be right for your church, create a task group to explore the benefits and responsibilities of creating an endowment fund and designate a committed member to oversee the creation of a planned giving program to support the fund. Use the following questions to guide your discussion.

  1. Does your church currently have popular, important, or innovative programs or ministries (new or continuing) that cannot continue or get started because they lack funding?
  2. Has your church ever had to cut back its outreach due to a lack of money?
  3. Is your church facing a decline not only in your members’ giving but also in their engagement in the work and life of your church?
  4. Are giving habits in your church changing?
  5. What would it mean to your church if you planned today to fund your ministries in perpetuity?

Establishing an endowment fund benefits your church in many ways. Creating an endowment sets up the structure to support the ministries and long-term interests of your church. It helps to focus your stewardship and fundraising efforts, and it can build community and increase the vitality of your church. Churches that do not have endowment structures in place are less likely to receive endowment gifts.

An established and well-managed endowment gives donors the confidence to entrust their gifts to your church. Church leaders that oversee the endowment are fiduciaries. They are responsible for donors’ money and have a legal obligation to manage your church’s endowment funds responsibly. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) provides guidance that endowment committees should follow regarding true endowments, but the principles can apply to all endowments.

Every church should have a plan and a strategy for gifts and/or income generated through the church. Creating an endowment necessitates careful thought, planning, and responsibility but creating an endowment is a gift not only to your present church community but it is a gift to your church’s community in the future.

Next in the Endowment 101 series – How to Create a Vision and a Purpose for Your Endowment

Does your church have a plan and structure to receive legacy or other special gifts?

For more information on creating an endowment, please visit ECF’s Endowment Management program or contact us at [email protected].