Only dividends, interest and other returns can be used for annual expenses. In a permanent or true nonprofit endowment fund, the principal or corpus can never be used to fund operational expenses. If the founding document does not specify the terms, then one must look to state law. The assets of the endowment will be restricted in the manner dictated by the donor in the founding document. In an endowment, all or some of the funds are restricted in some manner, and endowments are typically started with the use of a founding document such as a trust, gift agreement, or other written indication of donor intent. It first should be noted that endowments are different than non-profit reserve funds which are savings that an organization maintains to plug in budgetary holes, but that is not restricted by the board or a donor as to how and when they can be spent. In general, nonprofit endowment funds can be classified into three categories While this is generally a correct view, there are nuances among different types of endowments that have important legal, governance, and management implications. The establishment and maintenance of a nonprofit endowment fund can be a very important factor in ensuring the sustainability of a non-profit corporation. There is a general understanding in the non-profit world that an endowment involves the investment of an original amount of money (corpus), and that the corpus cannot be drawn down at a future time except under extraordinary circumstances, but that interest and dividends earned by the corpus can be used for operational expenses. Churches and Religious Organizations-Tax Resources.Tax-Exempt Organization Reference Chart.Nonprofit Mergers, Acquisitions, and Affiliations.
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