Legal Definitions - endowment

An endowment refers to a fund of money or other assets that is donated to an organization, typically a non-profit, with a specific instruction: the original gift itself (known as the principal or corpus) must be invested and remain untouched. Instead, the organization is permitted to spend only the investment income generated from that principal to support its operations or a designated program.

This financial structure is designed to provide long-term, often perpetual, financial stability for the recipient organization. By preserving the principal and spending only the earnings, the endowment can continue to generate income for many years, ensuring sustained support for the donor's intended purpose.

• Example 1: Community Library's Digital Access Fund

  A local public library receives a generous donation of $500,000 from a long-time patron. The donor specifies that this money is to create an endowment fund dedicated to ensuring perpetual access to digital resources, such as e-books, audiobooks, and online research databases. The library invests the $500,000, and each year, it uses only the interest earned from this investment (e.g., $20,000 annually) to pay for subscriptions to these digital services. The original $500,000 remains invested and untouched.

  This illustrates an endowment because the initial donation is preserved as principal, and only the income it generates is used for a specific, ongoing purpose—funding digital resources—providing continuous support without depleting the original gift.

• Example 2: Wildlife Sanctuary's Habitat Maintenance

  An environmental conservation group establishes a new wildlife sanctuary and receives a substantial gift of $2 million from a foundation. This gift is designated as an endowment to cover the ongoing costs of habitat restoration, trail maintenance, and educational signage within the sanctuary. The conservation group invests the $2 million, and annually, a portion of the investment returns (e.g., $80,000) is used to pay for ranger salaries, native plant restoration projects, and upkeep of visitor facilities. The original $2 million capital remains invested.

  This demonstrates an endowment as the initial $2 million gift is invested to create a sustainable income stream, funding the sanctuary's long-term operational and maintenance expenses without spending down the original capital.

• Example 3: Performing Arts Company's New Works Initiative

  A renowned regional theater company receives a $1 million donation from a patron who wishes to support the creation of new theatrical works. The donation is established as an endowment specifically for the "New Voices" program, which commissions new plays and provides development opportunities for emerging playwrights. The theater company invests the $1 million, and the annual earnings from this investment are used to fund grants for playwrights, workshops, and initial production costs for selected new plays. The original $1 million donation itself is never spent.

  Here, the endowment ensures a continuous source of funding for a specific artistic initiative, allowing the theater to foster new talent and productions indefinitely by spending only the investment income, not the principal.