The Virtual Endowment

Campus sunsetPerhaps you would like to establish an endowed fund with the University of Wisconsin Foundation and have the satisfaction of seeing the results. However, you have hesitated to transfer capital that you might need if your circumstances should change. One possibility is to establish the endowment at the end of your life funded with a bequest or some other deferred gift arrangement. Another is to create a “virtual endowment” now.

Suppose, for example, that Linda would like to ensure that $4,000 to $5,000 per year would be available in perpetuity for the purposes of UW-Madison. Because most endowments now distribute 4% to 5% of the value of endowment principal each year, a gift of approximately $100,000 would be required if the endowment were to be fully funded.

Instead of transferring a lump sum, Linda might agree to contribute $4,000 to $5,000 each year and pledge $100,000 to be paid either via a bequest or later in life if personal security is no longer a concern. Meanwhile, Linda would retain full control of the $100,000 and receive the earnings on it. She would, in fact, make her annual contributions with those earnings, and those contributions would be fully deductible. If she ever needed all of the income from her investments, she could suspend the annual contributions.

This arrangement functions like a fully funded endowment. The only difference is that Linda, not UW Foundation, holds the principal until she is ready to release it. The virtual endowment could bear her name or any other name she chose, and she could specify the purpose, consistent with institutional policy. Each year she would receive reports on how the money had been expended and be recognized among endowment donors.

For information about establishing any form of endowment—fully funded or virtual—please contact us.

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