How to Turn Modest Donations Into Big Dollars

More than 30 years ago, one couple made a $712 donation to your favorite charitable organizations, and they've been contributing ever since. Some years their annual gift was a modest $20, other years they made no donation at all. In total, they've donated more than $9,000 to us, but the value of their gifts is now more than $51,000. How can this be?

They had the foresight to establish an endowment fund in their name. Rather than spending their donations each year, we invest their gifts in the fund. As the principal of the investment grows, so does the income. That ever-growing income is used to support our work, but the principal always remains invested in order to perpetuate the fund.

The chart shows how the reasonable and regular contributions have grown into a significant gift.

Getting Started
When you make a gift to an endowment fund, it can either be outright or deferred (such as through a bequest in a will). Either way, your one gift can turn into a legacy of annual gifts long into the future.

Suppose you'd like to make sure your favorite charitable organizations receives $1,000 every year, even after your lifetime. Let's say charitable nonprofits spends 5 percent of its endowment each year. To calculate the amount needed to perpetuate your gift, divide the annual gift amount, $1,000, by the amount called for in the spending policy, 5 percent, and you get $20,000. So, contributing $20,000 can continue the $1,000 annual gift indefinitely.

If the value of the endowment fund grows beyond the spending amount, so does the income. For example, if the fund shows a total return of 10 percent in one year, 5 percent will be spent and the other 5 percent will be reinvested. By the second year, the value of the fund will be 5 percent higher, or $21,000, and the "gift" from the fund will be $1,050.

Please contact Mary Ludwig, Development Director at 712-732-5127, for more information.

The information on this site is not intended as legal, tax or investment advice. For such advice, please consult an attorney, tax professional or investment professional.

Copyright © The Stelter Company, All Right Reserved.

Essentials

Ways to Give

What to Give

Reading Room

Glossary of Terms

Q&A

Goals & Gifts

Bequest Language