Endowment Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Endowment, written in plain English, along with examples of how it is used.
What is Endowment?
n. the creation of a fund, often by gift or bequest from a dead person’s estate, for the maintenance of a public institution, particularly a college, university or scholarship.
History and Meaning of Endowment
Endowment is a term used to describe the creation of a fund with assets such as investments, property or cash donated by a person, usually via a will or trust. This fund is then used to support a specific institution, organization, or cause through regular distributions of income from the assets, while the principal remains intact to generate future income. The purpose of an endowment is to provide long-term financial stability to the beneficiary by ensuring regular income to help cover operational and capital costs.
Historically, the concept of endowments dates back to the Middle Ages in Europe where wealthy families would donate property or grants to religious institutions, universities, and hospitals. Endowments played a crucial role in the development of higher education in the United States as well. Many of the country's oldest and most prestigious universities, such as Harvard, Yale, and Princeton, owe their financial stability and continued success to large endowments.
Examples of Endowment
A wealthy alumna donates $10 million to her alma mater, to create an endowment to fund scholarships for underprivileged students.
A private foundation establishes an endowment with $50 million worth of securities to provide regular donations to a public museum to acquire new exhibits.
A hospital receives a bequest from a deceased donor's estate, consisting of stocks and bonds worth $20 million, to set up an endowment that would finance research in oncology.
Legal Terms Similar to Endowment
Trust: A legal arrangement where a trustee holds and manages assets for the benefit of a beneficiary, under the terms specified in a trust agreement.
Asset management: The professional management of assets such as cash, investments, and real estate on behalf of an individual or institution.
Foundation: A non-profit organization established to support charitable causes, often funded by an endowment, gifts or donations from its founders, corporations and other donors.