An endowment refers to an investment structure employed by large Not for Profit institutions such as schools and hospitals. The endowment’s purpose is to raise capital invested in the not-for-profit organization portfolio to fund its activities. The principal money usually is never withdrawn. This can work in perpetuity as it earns interest.

There are broadly three types of endowments

Term

This is money contributed for a specific amount of time and is not perpetual as other types of endowments. It is set up to run through the lifetime of the principal donor. Upon his death, funds contributed used to fund operations.

True

In this form of an endowment, money invested perpetually. And only returns from investment used by the receiving body to run operations. This form typically has paperwork attesting to the donors’ wish to have the money invested perpetually.

Quasi-

This form comes from the board of directors of the receiving not-for-profit entity when they invest financial gifts into an endowment program.

Taxation

One of the benefits of an endowment fund is that it enjoys significant tax breaks, thus the reason it is a preferred investment vehicle for not-for-profit organizations. Mainly capital gains and dividends are not subject to tax on programs, but an excise tax is levied on the program. This helps in boosting growth as compared to other forms of investing.

Work with an endowment consultant when planning to invest in helping guide how best to execute a gift to an program. They can also advise how investing in an endowment program can help limit tax liability.

https://corporatefinanceinstitute.com/resources/knowledge/other/endowment/

https://www.mercer.us/what-we-do/wealth-and-investments/nonprofit/endowments-and-foundations.html