I can’t find a substantial written summary on your Website that gives a bullet point overview of setting up an endowment and then properly managing it under state law? I now serve on a board that is considering setting up an endowment. Do you have any sense as to what makes sense as a minimum endowment to justify the bookkeeping and administrative expense in managing it?
I don't think I have written anything specific on starting an "endowment." This is partly because a true endowment occurs when the donor imposes the endowment restriction on a gift. If I give you $10,000 and say spend the income only and not the principal, and if you accept the gift, you have an endowment whether you intended it or not. You could also create an endowment by asking donors to contribute to a specific endowment fund and getting gifts to that fund. The donor would be deemed to have accepted and imposed the permanent restriction. The general rules for operating an endowment and setting the amount that can be spent each year are set out in the Uniform Prudent Management of Institutional Funds Act, which has been passed in some form in every state except Pennsylvania. (See Ready Reference Page: “New UPMIFA Sets Rules for Management of Charitable Funds”)
A lot of organizations provide that every bequest they receive in excess of a specific figure, such as $10,000, will be treated as endowment. But since the board can remove that treatment at any time, it is only “quasi-endowment” and considered “unrestricted” on the financial statements and tax returns. Some groups add part of an annual surplus to the quasi-endowment. Quasi-endowment is treated as if it were endowment, but could be spent entirely at any time.
An endowment can be just a bookkeeping entry on the financial records. It could be invested separately and differently because of the longer investment time horizon. The investments could include the "quasi-endowment" funds as well, so long as there is a way to separate the records for the true endowment for future years.
There is no minimum for an endowment fund. If you accept a permanently restricted gift of $1000, you have an endowment. The bookkeeping or management costs for that would not be particularly expensive. The issues for starting an endowment are more likely to be whether you would be able to raise sufficient funds for an endowment to make a meaningful difference in how much you have to spend each year and how long you are willing to work until you build it up to a significant number.
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