Endowment Spending Policy Template

Organization Name: [Organization Name]
Document Title: Endowment Spending Policy
Effective Date: [Date]
Version: [Version Number]
Policy Owner: [Department / Role]

1. Purpose

The purpose of this Endowment Spending Policy is to establish a clear and consistent framework for determining annual appropriations from the Organization’s endowment funds.

This Policy is intended to support prudent spending, respect donor restrictions, promote long-term financial sustainability, and provide appropriate oversight of endowment distributions.

2. Scope

This Policy applies to the following funds, as applicable:

☐ donor-restricted endowment funds
☐ board-designated endowment funds
☐ quasi-endowment funds
☐ term endowment funds
☐ other funds designated here: [Describe]

This Policy does not override donor restrictions, governing documents, or applicable law.

3. Guiding Principles

In administering endowment spending, the Organization intends to:

support the charitable mission of the Organization;
respect donor intent and legally binding gift restrictions;
preserve the long-term purchasing power of endowment assets to the extent practicable;
maintain a reasonable balance between current needs and future needs;
apply a prudent and documented spending process.

4. Definitions

For purposes of this Policy:

“Endowment fund” means a fund or portion of a fund intended to be invested for long-term support and subject to applicable restrictions or board designation.

“Board-designated endowment” or “quasi-endowment” means a fund treated as endowment by board action rather than donor restriction.

“Appropriation” means the amount approved for expenditure from an endowment fund for a stated fiscal period.

“Underwater fund” means a fund whose current fair market value is less than the value required to be maintained under the applicable gift terms or governing rules.

5. Spending Objective

The Organization’s spending objective is to provide a stable and prudent stream of annual support from endowment funds while seeking to preserve the real value of those funds over time.

The Organization recognizes that spending decisions may vary by fund, restriction, market conditions, and operational needs.

6. Annual Spending Method

Unless otherwise required by donor restriction, law, or separate board action, the Organization shall determine annual endowment spending using the following method:

☐ [Percentage]% of the rolling average fair market value of the fund over the prior [Number] quarters or [Number] years
☐ a hybrid formula using [Describe]
☐ an annual prudence-based appropriation without fixed percentage
☐ other method: [Describe]

If a rolling average is used, the valuation dates and calculation method shall be:

[Insert details]

7. Board and Committee Authority

Endowment spending shall be reviewed and approved as follows:

☐ staff recommendation
☐ finance committee review
☐ investment committee review
☐ board approval
☐ other approval process: [Describe]

No annual appropriation from an endowment fund shall be made unless approved in accordance with the Organization’s governance procedures.

8. Prudence Review Factors

In deciding whether to appropriate from an endowment fund, and in what amount, the Organization may consider the following factors to the extent relevant:

the duration and preservation needs of the fund;
the purposes of the Organization and the specific endowment fund;
general economic conditions;
the possible effect of inflation or deflation;
the expected total return from income and appreciation;
other resources of the Organization;
the investment policy of the Organization;
other relevant factors, including donor restrictions, liquidity needs, or unusual circumstances.

Additional factors or notes:

[Insert details]

9. Donor Restrictions and Fund-Specific Terms

If a gift instrument, trust instrument, bequest, board resolution, or other governing document imposes restrictions on a fund, those restrictions shall control.

The Organization shall not appropriate or use endowment assets in a manner inconsistent with donor-imposed restrictions or applicable law.

Fund-specific exceptions, if any, shall be handled as follows:

[Insert details]

10. Board-Designated Endowments

Board-designated endowment funds may be spent, modified, redesignated, or released by board action, subject to the Organization’s governance procedures.

Unless otherwise stated by the board, the annual spending approach for board-designated endowment funds shall be the same as the approach used for donor-restricted endowment funds, except where the board determines otherwise.

11. Underwater Funds

If an endowment fund is underwater, the Organization shall determine whether any appropriation is prudent under the circumstances.

In making that determination, the Organization may consider:

the extent of the decline in value;
donor intent and restriction language;
short-term and long-term needs of the supported purpose;
alternatives to current endowment spending;
market recovery considerations;
other resources available for the supported purpose.

Special rules for underwater funds, if any:

[Insert details]

12. Alternatives to Spending

Before approving an appropriation, the Organization may consider whether reasonable alternatives exist, including:

fundraising for current needs;
use of non-endowment operating funds;
expense reductions or deferrals;
temporary budget adjustments;
other available resources.

13. Extraordinary or Special Appropriations

The board may approve an extraordinary appropriation outside the ordinary spending formula if it determines that doing so is prudent and consistent with donor intent and applicable law.

Any extraordinary appropriation shall be documented separately and should state the reason for the exception.

14. Timing of Appropriation and Distribution

Annual endowment appropriations shall ordinarily be approved:

☐ annually as part of the budget process
☐ quarterly
☐ at another interval: [Describe]

Distributions from appropriated amounts shall be made as follows:

[Insert timing and transfer process]

15. Investment and Spending Coordination

This Policy shall be read together with the Organization’s investment policy and related financial controls.

The Organization may coordinate asset allocation, return expectations, liquidity planning, and annual spending levels to promote long-term sustainability.

16. Documentation and Recordkeeping

The Organization shall maintain reasonable records of annual spending decisions, including:

the amount approved;
the fund or funds affected;
the method of calculation used;
the prudence factors or considerations reviewed;
any exceptions, special circumstances, or board directives.

Such records may be kept in board minutes, committee minutes, memoranda, or other permanent records.

17. Roles of Advisors and Managers

The board may rely on staff, legal counsel, accountants, auditors, investment advisors, or outside fund managers for information and recommendations relating to endowment spending.

Any delegation of day-to-day investment or administrative functions does not eliminate the board’s oversight responsibility.

18. Review of Policy

This Policy shall be reviewed:

☐ annually
☐ every [Number] years
☐ after significant market events
☐ after legal or donor-restriction changes
☐ other: [Describe]

The board may amend this Policy at any time through the approval process below.

19. Approval

Approved By: __________________________
Name: [Full Name]
Title: [Title]
Date: [Date]

Board or Committee Approval, if applicable:

Approved By: __________________________
Name: [Full Name]
Title: [Title]
Date: [Date]