Creating Endowments for Congregations: Pros and Cons (2023)

Creating Endowments for Congregations: Pros and Cons

Robert W. Bohl, Pastor
Village Presbyterian Church
6641 Mission Road
Prairie Village, Kansas 66208
(913) 262-4200

These thoughts have developed over the last thirty-five years of my ministry in thinking about and developing an endowment in the congregation where I have served as a pastor. The oldest and most widely used reason for not creating an endowment is that endowments stifle creative stewardship and ultimately kill the endowed institution. So we are still watching for Harvard University to die! Let me list the other reasons why churches have failed to build and endowment.


1. Endowments are for large congregations. Since most congregations are small to medium size they have no members who have the financial capacity to help create an endowment, so church leaders think. The assumption is that only large churches can have endowments because they alone have people who can give bequests.

The stewardship studies of congregations reveal that in every congregation with forty giving units, one in that forty has the capacity to give as much as the other thirty-nine combined. Secondly, since death is still universal, and since we all die with something tangible we leave to others, the church supported in our life time could be supported in our last Will and Testament.

2. Endowments diminish the annual stewardship giving of members. Many pastors and church leaders live with a financial survival mentality and refuse to ask for special gifts (items not budgeted) or for bequests because they are convinced this will discourage the annual giving from members.

(Video) The Endowment Model

When people believe enough to endow the future of a church's mission and ministry, it is most unlikely that they will refuse to support it during their lifetime. The reality is the more a person gives annually, the more likely they are to respond to a request for a bequest.

3. Endowments are difficult to manage and cause conflict in congregations. The most prevalent notion in most congregations is they have no one to manage to financial resources of an endowment (probably not true). Endowments create conflicts among members who disagree upon the issue of the income from the investments.

The Presbyterian Foundation (U.S.A.) Began in 1799 and now manages 1.6 billion dollars. The most creative endowments are those in which the donor designates where the income is to go, thus alleviating the decision at the local church.

4. Endowments discourage the emphasis upon mission. The leadership in most congregations seem to believe their first priority is to preserve the institution (charity begins at home and belongs there). Therefore, to invite people to give to an endowment will find most of them designating their bequest to some mission outside the local church or the local community.

The experience of hundreds and hundreds of congregations with endowments reveal that the vast majority of them favor the local church with investment income giving to maintenance, internal church programs and local mission projects.

5. Endowments make it possible for some people to believe their annual financial gifts to the church are unimportant. Church leaders believe that people only give when they are aware that the church is in a financial crisis, thus endowments create the attitude that the church does not need everyone to give annually.

There is no such thing as a proxy stewardship. What an individual gives or does not give to the mission and ministry of the church has nothing to do with what the endowment supports. What an individual gives is the way that person expresses gratitude to God and no one can do that for another person.

(Video) How Endowments Work

6. Endowments confuse the annual budget process. Churches are inclined to use the endowment income to balance the budget, to lessen the annual asking of increased pledge giving and to make the church's giving look better than it is. So the annual question is how much can we expect from the endowment and since we never know, it is impossible to develop an accurate budget.

Endowment income should all be designated and never made a part of the annual budget. Items designated mean they do not need to be included in the annual budget which is always ultimately a mistake as people grow to rely upon the endowment to support the church.


1. Endowments make it possible for people to give beyond their lifetime. Endowments are based on trust. Donors trust the church to honor a person's bequest, to manage the principal wisely and to disperse the income on an agreed upon formula. When a person has given all throughout that person's life and the church does not make a provision for that person to continue to give after death, it is an insult to that person. It says to that person we don't care what you have or what you have given, or what your faith is and your interests are, we simply don't want to help you.

In most bequests, if they have been properly encouraged, the bequest can be larger than a person's giving throughout that person's lifetime. Example: Presbyterians on average give about $575 annually. If a person gives for 50 years that amounts to $28,750. Most bequests will exceed that if the church leadership makes know the designated giving opportunities and encourages a person to leave a tithe of that person's estate.

2. Endowments are not primarily a financial issue, they are a theological issue. When a person creates an endowment gift to the church it makes it possible for that person to perpetuate that person's faith and trust in God. Giving beyond a person's death declares to the generations to come that person's faith in God. Endowment gifts are theological statements which prove a person's belief that we are never ultimately proprietors, owners, we are always only stewards, lifetime guardians entrusted by God to use wisely what God has placed in our hands to use. For this reason, a person's bequests to the church is the final expression of the magnitude of that person's faith.

Faith in God is not only an earthly issue, it is also an eternal issue.

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3. Endowments create new possibilities for mission and ministry. Most churches are limited in the annual budget as to their mission interest and the variety of their ministries. When bequests are received, which fund what was traditionally in the annual budget, it creates additional budget monies for new projects and programs. Churches that refuse to develop creative endowment opportunities should not have an endowment.

The development of a wish list for mission and program endowments is the first place to begin. Seldom do people give undesignated large bequests. The gifts church leaders give to potential donors is a menu of opportunities for designated giving.

4. Endowments are based on trust. Church leaders who wish to create an endowment and endowment giving opportunities need to have in place investment policies including the investment managers and to have determined the spending formula. The endowment policy should have in place a designated formula for bequests that are received which are not designated. An example might be 50% for mission programs and 50% for internal church programs such as music ministry, children, youth, adult ministries, maintenance endowment, insurance premium endowment, furniture replacement, organ and music instrument maintenance, etc.

People give more when their gift can be designated.

5. Endowments perpetuate essential ministries and make possible a larger understanding of the meaning of stewardship. Since annual giving has declined for the last sixty years (when you factor in inflation and the increase in annual salaries) the temptation is to retreat and withdraw support of worthy ministries. Endowments ask the ultimate question: What values and ministries do I hope will continue after my lifetime on earth? Most people need help when doing value clarification, so one place to begin is to encourage people to leave a bequest which will endow their annual pledge. Total stewardship includes the use of a person's annual income, but it also involves the ultimate designation of accumulated assets (those things we can't take with us when we die and therefore we have a stewardship obligation to direct the disposal of them according to our wishes. If we don't do that someone will do it for us.)

Everyone wants to be remembered for accomplishing something and endomwment bequests make it possible for what that person believes in to live on far beyond that person's span of life.

6. Endowments make it possible for everyone to give generously. The bequest a person gives to the church is never to be measured by the amount of the gift but the percentage of that person's potential to give. Far too many in the church today fail to realize just how wealthy they are in comparison to most in the rest of the world. All bequests should be cultivated out of a need to express gratitude and never from the perspective of creating guilt when a person gives a small bequest or no bequest.

(Video) Church Endowments

Jesus always measured a person's gratitude by how that person shared their possessions, i.e. the widow's mite.

7. Endowments require creative leadership. It is a major fallacy of most church leaders attempting to create an endowment to think only of bequests. Today there is more wealth in America than ever before in all of our history. In order to preserve wealth and to avoid huge estate taxes there are many giving instruments that can be used: charitable gift annuities, charitable lead trusts, charitable remainder trusts, charitable giving through life insurance, the giving of highly appreciated assets (stock and real estate), the donation of deferred tax programs: IRA's, 401K plans, cash value in life insurance policies.

Financial planners, Presbyterian Foundation Representatives, and tax attorneys can all be used to help with life gift planning of assets.


Most churches do not have endowments because of an appalling lack of leadership in the local church. It usually is because the concentration has been upon the negatives of creating an endowment. Because we live in a different climate than fifty years ago, because the offering plate passed at worship can no longer adequately support the mission and ministry of the church, because we have enormous wealth potentials, we do a disservice in congregations when we deny them the opportunity to give to an endowment in the church of which they are members.

The church today has an unprecedented financial opportunity, so for church leaders, the challenge is to be leadership stewards in helping people create a life legacy which will assure the future financial viability of the church.

Please note that these are all samples and should not be used without careful review.

(Video) What is an Endowment?

This is not intended to be legal, financial or accounting guidance but as a guide for the church to write its own material according to your local needs and restrictions. Please refer to your own accountant or attorney for accounting and specific legal counsel.


How much endowment is enough? ›

How big should your organization's endowment be? It's simple. It should be two times the amount of your annual budget. If your annual budget is $2 million dollars, your endowment should be $4 million.

What is the purpose of endowments? ›

An endowment is an aggregation of assets invested by a college or university to support its educational and re- search mission in perpetuity. It represents a compact between a donor and an institution and links past, current, and future generations.

How much money do you need to create an endowment? ›

A minimum initial gift of $25,000 in cash, appreciated securities, closely held stock, real estate or other real property is recommended for an endowed fund, but you may start with a smaller amount and make plans to add to it over time.

How do endowments work? ›

HOW ENDOWMENTS WORK. Endowed funds differ from others in that the total amount of the gift is invested. Each year, only a portion of the income earned is spent while the remainder is added to the principal for growth. In this respect, an endowment is a perpetual gift.

What are the 3 types of endowments? ›

There are four different types of endowments: unrestricted, term, quasi and restricted. Term endowments usually stipulate that only after a period of time or a certain event can the principal be expended.

How much do endowments return? ›

College endowment returns averaged 30.6% after fees in the 2021 fiscal year, surging due to high investment performance led by U.S. equities, according to an annual study released Friday. The breakout 2021 figure far outpaced a 1.8% average return from the year before.

What are the advantages of an endowment? ›

A well-managed endowment sends a message of planned long-term stability, fiscal responsibility, and financial viability. It enhances the organization's prestige and credibility. Relieves pressure on the annual fund.

What are the four factor endowments? ›

Factor endowments are the land, labor, capital, and resources that a country has access to, which will give it an economic comparative advantage over other countries.

Should a church have an endowment? ›

Endowment funds are an excellent way for churches to act as good stewards, because they help ensure that the gifts received will continue to benefit the church for years to come. Just as being a good steward requires careful planning and attention to detail, so does creating and growing an endowment fund.

When should a nonprofit start an endowment? ›

Timing of Establishing an Endowment Fund

Ideally, the annual donor revenue should be 110% or more of the annual operating budget to allow for organic growth. If revenue is around 110% of the annual operating budget, the organization should consider if it has adequate reserves.

Can you take money out of endowment? ›

The principal, or a portion of the money, usually remains intact. Meanwhile, the organization can withdraw the earnings and use them for general operating costs or special purposes. Generally, only public-serving entities can put endowment funds in place.

How do you build an endowment? ›

An endowment is a permanent asset of an organization that is invested to earn income. The money to build the endowment can come from many sources. Many times, an individual donor will contribute money to their favorite cause in order to sustain the efforts of specific programs and organizations.

What is endowment example? ›

An example of an endowment is a scholarship fund that has been set up in memory of a deceased person and that funds the education of students. An example of an endowment is when a person makes a gift of money to support a university or other cause.

How are endowments organized? ›

Endowments tend to be organized as a trust, private foundation, or public charity. Educational institutions, cultural institutions, and service-oriented organizations typically administer endowments.

What is a true endowment? ›

A true endowment is created by a gift or bequest when a donor instructs the fiduciary that the corpus of the gift be held in perpetuity (or for a specified term of years) with the income/payout used to support the institution or a particular program.

What endowment means? ›

Definition of endowment

1 : the act or process of endowing. 2 : something that is endowed specifically : the part of an institution's income derived from donations. 3 : natural capacity, power, or ability a person of great intellectual endowment.

Where do endowments come from? ›

The sources of these funds vary and may include private corporations and government agencies; however, university endowments typically come from individual donors, many of whom are alumni who want to give back to their alma maters for the formative opportunities and relationships they gained there.

How are endowments invested? ›

Endowment funds are initially invested by donors for certain charitable purposes. They are usually established as trusts, which keep them independent of the organizations that they support. Endowment funds consist of cash, equities, bonds, and other types of securities that can generate investment income.

How big is the endowment market? ›

How large are the endowments of colleges and universities in the United States? Response: At the end of fiscal year 2020, the market value of the endowment funds of colleges and universities was $691 billion, which was 2 percent higher than the beginning of the fiscal year, when the total was $675 billion.

Why are endowments important to universities? ›

Endowments provide important financial stability to the college or university and, in turn, to the local community. Endowments also provide the financial cushion that enables the college or university to work with towns and cities to improve the quality of local schools and to revitalize neighborhoods.

What is the average college endowment? ›

But multi-billion dollar endowments are not common in higher education. Of the 397 ranked National Universities – institutions that are often research-oriented and offer bachelor's, master's and doctoral degrees – that submitted this data to U.S. News, the average endowment size is around $1.7 billion.

Are endowment policies worth it? ›

Endowment plans are a good investment tool. These plans are beneficial since this is a long-term plan and offers good returns over a long period. One of the major benefits of an endowment plan is that it provides an option to invest money in a disciplined and well-organized way to fulfill financial requirements.

Are endowment policies still a good investment? ›

Some people have large savings goals or debts to pay off in the future. One example people often give is wanting to pay off their mortgage. An endowment policy can be a good investment in helping someone achieve these goals, whilst at the same time giving life insurance cover.

What happens when my endowment matures? ›

When the plan reaches the end of the policy term, no matter how many years, the endowment plan is said to mature. If the policyholder survives till the end of the policy term, a maturity benefit is paid out to them. If they die before the maturity of the plan, a death benefit is paid out at the time of death.

Why are college endowments important? ›

Endowments provide important financial stability to the college or university and, in turn, to the local community. Endowments also provide the financial cushion that enables the college or university to work with towns and cities to improve the quality of local schools and to revitalize neighborhoods.

Do endowments grow? ›

Most endowments are designed to keep the principal corpus intact so it can grow over time, but allow the nonprofit to use the annual investment income for programs, or operations, or purposes specified by the donor(s) to the endowment.

What does endowment mean for college? ›

An endowment refers to the amount of money a college receives in donations. This endowment is then used for a variety of things—scholarships, upgrading facilities, hiring professors, and more.

What is endowment policy in simple words? ›

An endowment policy is an insurance policy that provides life coverage, but that pays a sum of money if the policyholder is still alive after an agreed period of time. An endowment policy is designed to provide a lump sum on maturity.

Is endowment guaranteed? ›

Endowment life insurance is a specialized insurance product that's often dressed up as a college savings plan. The endowment life insurance policy promises a risk-free, guaranteed return on a guaranteed date as long as you make the fixed monthly payments.

Which is better term plan or endowment plan? ›

Endowment plans may have a slightly higher premium rate than term insurance since they offer both insurance and investment features. Term insurance is not a savings instrument. Endowment plans can be used for saving your earnings for the future efficiently.

Are endowments tax free? ›

Endowment policy proceeds are normally paid tax free but , if you cash in your endowment early and breach qualifying rules, you may incur a tax liability.

What happens at the end of an endowment policy? ›

Endowment policies offer both life insurance and a lump sum at the end of the policy from investments. So, if you die during your policy your family will receive a payout. However, if you don't pass away, you will still receive a lump sum at the end of the policy from your investments.

Are endowment policies tax free? ›

An endowment plan comes with tax benefits because the payable premiums as well as the main plan benefits (sum assured and the maturity proceeds) are eligible for tax-exemption under Sections 80C and 10D of the Income Tax Act, 1961.

Can you withdraw from an endowment? ›

You cannot make more than one withdrawal during a restriction period. This applies whether you withdraw a portion or the most you are allowed. There are no exceptions to this rule. The most you can withdraw is the total of your contributions plus 5% compound growth per year.

Can you cash in endowment? ›

You can cash in your policies whenever you want to. However, if you cash them in early, you may lose out on any final bonus or mortgage endowment promise that may be added. Also, there may be charges for cashing in your policies early.

Can an endowment be Cancelled? ›

If your endowment is a true endowment without a time restriction, the version of the Act adopted in your state will govern what you can or can't do with endowment funds and you generally can't change it without the Donor's approval or a Court order.


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