Making endowments work for the long haul
June 17, 2025
| By La Crosse Community Foundation |
Smart strategies for spending and stewarding your fund
An endowment fund can be one of a nonprofit’s most powerful tools, providing a reliable source of income and building financial resilience. But how and when you use those funds matters just as much as having them in the first place.
Whether your organization is navigating its first endowment or fine-tuning long-term financial strategies, here are best practices for spending from and stewarding an established endowment.
Best practices for spending from your endowment
Set a sustainable endowment spending policy
A clearly defined spending policy helps balance current needs with future sustainability. Most nonprofits follow a “total return” approach, drawing 4% to 5% annually based on a multi-year average to provide predictable support while preserving the fund’s long-term value.
Best practice: Use a 4% to 5% draw rate (based on a multi-year average) to balance current needs with future growth.
Time endowment withdrawals to your budget cycle
Spending distributions should typically occur once or twice a year, often tied to your organization’s budgeting cycle. Avoid out-of-cycle or emergency draws unless board-approved and clearly justified.
Best practice: Schedule distributions as part of your annual budget to avoid reactive or unplanned spending.
Review your distribution strategy annually
Annual reviews help ensure your policy stays aligned with changing market conditions, inflation, and your organization’s financial health. Using rolling 3–5-year averages cushions your budget from sudden market shifts.
Best practice: Use rolling averages of 3–5 years to reduce the impact of market spikes or dips. This cushions your budget against economic shocks.
Use endowment funds in line with donor intent and UPMIFA
Donor-restricted endowment funds must be used strictly according to their intended purpose. Beyond honoring donor trust, this is also a legal requirement under the Uniform Prudent Management of Institutional Funds Act, which governs most nonprofit endowment spending.
Best practice: Maintain detailed records of fund restrictions, ensure spending aligns with those purposes, and consult legal or foundation advisors when in doubt.
Align endowment spending with nonprofit goals
Don’t treat your endowment like an emergency fund. Your endowment should support mission-critical initiatives, not plug unexpected budget gaps. Use it to strengthen programs and strategic growth, not for one-time or avoidable shortfalls.
Best practice: Use endowment funds strategically to support core mission goals and long-term initiatives, not to cover routine shortfalls or one-time, non-essential expenses.
Report endowment fund use with transparency
Your constituents, especially donors and board members, should understand how the endowment is being used to fulfill your mission. Annual reporting that covers investment returns, spending distributions, and impact helps reinforce trust.
Best practice: Include annual distribution amounts, use of funds in mission terms, and long-term financial outlook in reports.
Engage your board in endowment oversight
Your board has fiduciary responsibility for overseeing endowment spending. Make sure they are engaged, educated on UPMIFA guidelines, and actively involved in key decision-making discussions.
Best practice: Assign an investment or finance committee to monitor spending policy adherence and recommend any adjustments.
Commitment for the long term
An endowment is a financial asset and a lasting promise to your mission. Use it with care, and it will support your work for decades to come.
