Donations are gifts of money given to organizations for specific purposes. They can be categorized by recipient, purpose, or how finances are handled. Endowments can be term, trust fund of others, or permanent. Donations can also be categorized by how funds are used, either restricted or unrestricted. Endowed chairs and scholarships are specific types of academic endowments.
A donation is money given to an organization, usually for a specific purpose. Gifts are generally intended to be used for investments that will create indefinite interest income for the recipient. Donations come in many types and can be categorized by their type of recipient, their purpose, or by how the finances of the donation are handled. Donation recipients can typically be a college or university, library, or hospital. Gifts can be real or permanent, or they can be term gifts.
Endowments are generally administered in four ways. A term endowment pays a designated recipient, but only for a predetermined period of time, or until a specified event occurs. An example of an event that could terminate a term donation is the death of the donation recipient or the closure of the organization receiving the donation. This type of endowment may also be called a living trust.
Another way to make a grant is to have an investor outside of the recipient organization invest the principal and transfer the proceeds of the principal to the recipient. This type of endowment is called a trust fund of others. A permanent, or true, endowment is a principal investment that provides interest income to an organization indefinitely.
Sometimes a donation can be categorized based on how an organization can use its funds, whether the spending is restricted or not. Restricted endowments, sometimes called restricted-purpose endowments, are financial gifts given to an organization for a specific purpose. Unrestricted endowments, also called quasi-endowments, provide general funds for an organization or department. Where an unrestricted endowment would allow an organization to spend money on anything the organization needs, a restricted endowment could give a specific gift, such as new musical instruments for a high school music program. In science, a restricted endowment may be for a specific purpose within a specific area of study.
Within the academic world, another type of endowment is the endowed chair. These highly regarded salaried positions are awarded by an institution of higher learning. Often professors who receive this honor are considered to be ranked above a standard professor at that institution. An endowed scholarship is a restricted-purpose endowment awarded to students at an educational institution.
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