An endowment is another word for a permanent fund - one into which people donate assets that will be permanently managed so as to provide a steady income in all future years. That income can be designated for a single purpose or split among several purposes. Technically, the gift is made to the Foundation and its directors make decisions regarding the future management of the assets and the distribution of income. This authority is necessary for charitable tax deduction purposes and is also necessary if in future years some unforeseen change happens such as the merger or elimination of a named charity. There is a general account into which most any donation may be made.

It is also very possible to establish a separate named account, such as the Smith Family Fund, that will be recognized as supporting certain projects or charities. Or a charity could establish a similar separate account, such at the Youth Services Center Fund, and direct its donors to that fund. There is a cost of separately accounting for such funds; currently the community foundation requests a minimum $25,000 asset level before establishing such separate accounting and distributing income. Exceptions are occasionally granted, but the concept is that a 1% overhead rate would generate $250 which is calculated as the minimum annual cost for such separate accounting and annual reporting.

Charitable Annuities

A charitable annuity is partly a charitable gift and partly a monthly or annual income paid back to the donor. Often a person has an appreciated asset, such as stock or real estate, that is valuable but does not generate income. The person might like to sell it and invest in something to generate monthly income, but hesitates to do so because capital gains taxes would be triggered. A possible solution is a charitable gift annuity agreement. The donor gives the property to the Bozeman Area Community Foundation, which usually soon sells it. Because the Foundation is tax exempt, capital gains taxes are reduced. The Foundation then begins making monthly payments to the donor.

For example, a person might have a vacant lot worth $100,000 (a round number for reference). Assume the donor is 72 years old and would like an extra $500 per month income for the rest of his or her life. The Bozeman Area Community Foundation can contract to pay that, beginning very soon after it sells the donated property. The stream of monthly checks that the donor receives is worth about a total of $70,000 - based on actuarial and other tables. This leaves about $30,000 that will eventually be left for charitable purposes and it is that value which can be claimed as a charitable donation, thereby probably reducing other income taxes the donor might otherwise pay.

It's method of converting non income producing property into a lifetime income, reducing taxes, and benefitting the community. We like to think of it as a win - win situation for everyone, except the IRS. This technique is a specialty of our Foundation.

We can discuss your own situation and ideas and will be glad to answer questions from your CPA or attorney. Please note that we do not attempt to give specific tax or legal advise and we therefore suggest that you also consult your own attorney and accountant.