By Shauw Chin Capps, CBF Foundation President
In my years of assisting churches in creating endowment funds, I have come across many questions that people have asked that have common themes. I decided to compile several of the most asked questions regarding endowment funds and to offer a response to each of them. My hope is that the responses can be helpful for lay leaders and ministers to navigate some of the common challenges that can sometimes arise.
Why does my church need an endowment fund?
A church needs an endowment fund to ensure long-term financial stability, support ongoing ministry, and provide resources for future needs. Endowments provide a steady income stream that can be used to fund missions, programs, and other initiatives, even when regular contributions are less predictable. Similar to your own personal finances, you need a checking account to meet daily expense needs, a savings account for intermediate needs like an occasional car repair, and a retirement or investment account for future needs.
Does endowment giving take aways from regular giving to the operational budget of the church?
No. In fact the opposite happens. Considering 85% of endowments will come from estate gifts, the money does not interfere with a member’s regular giving. Studies have shown that a member’s regular giving and volunteer hours actually increase 25-40% after they create a planned gift in their estate plan to an endowment. This should not be surprising because members who are invested in the future of the church have a bigger stake in ensuring the current wellbeing of their church.
Is there a risk that an endowment will become obsolete over time?
While this is a valid concern, there are steps that churches can take to prevent this from happening:
- Regular review – Periodically assess the endowment’s purpose and relevance to ensure that the purpose is still in line with the church’s mission/vision. Adjust restrictions if needed.
- Adaptability – Allow for flexibility in how funds are used. If needs change, consider modifying the endowment’s focus. An endowment fund that is created by the governance of the church and is not from a single donor can be modified. Offer proper guidance to members who have a desire to set up an endowment fund to ensure that the purpose is a good fit with the mission of the church and can weather the test of time.
- Stewardship – Responsible management ensures the endowment remains impactful and aligned with the church’s mission. It is best practice to have a dedicated endowment committee to provide oversight of the church’s endowment funds.
Don’t only wealthy people give to endowments?
No. The average gift to an endowment is about $60,000. This is usually a percentage of a remainder estate. A planned gift is often the single largest gift a person will make. Every person, wealthy, poor and in between has an opportunity to create their own personal legacy. Every gift, no matter how small, carries immense value. Your generosity, whether grand or modest, makes a lasting impact, and is a reflection of a legacy rooted in faith.
What happens to the endowment if my church closes or merges with another church? The endowment charter document should clearly answer this question. Some endowments provide for a successor beneficiary, like another nonprofit. Other endowments transfer to a new trustee (example: CBF Foundation), with instructions to find another beneficiary with a mission that is similar to the church. In the case of a merger, endowments usually follow the merged organization.
How big should a church’s endowment fund be?
There are no requirements for how big or small an endowment should be. An endowment of almost any size can provide ongoing support for ministry. There are, however, some best practice guidelines. Experts suggest that a church’s endowment fund should be two times the size of the church’s annual budget. This would allow for a consistent income from the endowment of about 10% of the annual budget, assuming a standard 5% spending policy. For example, if a church’s annual budget is $500,000, its endowment should aim to be $1 million, generating $50,000 annually.
CBF Foundation offers support to churches and individuals who wish to start an endowment fund. Contact Shauw Chin Capps at scapps@cbf.net for more information.