An endowment is money that is left in a bulk sum, often as the result of a willed bequest that is turned into an endowment fund. The proceeds generated from this wealth usually come in the form of interest, and are used to fund a private foundation.
Some organizations solicit endowment funds (also known as “planned giving”) from the living to be received upon their death. Funds from a donor may be put into a larger endowment fund with other planned gifts, unless specified in the will that it must be kept separate.
Though not-for-profits may not enter into real estate speculation with endowment assets, if land is the endowment, the NPO may develop those lands to sell. Additionally, money collected in rents or other “use fees” can also be used as nontaxable income, but only up to a point. If the amount of money generated from the sale or use of endowment lands is more than the operational budget of a nonprofit for that year, the additional wealth will likely be taxable. As with other capital funding, if a nonprofit is given money or goods, that money or those goods must be cycled back into the organization to be used by the NPO.
