It’s About Time: Elevating the Stewardship of Immediate-Use Donors
Behind the clock at the Musee d’Orsay, Paris, France.
Donors want to ensure that their gifts will be applied fully to the recipient institution’s mission; that’s not new. What is new is the possibility (and reality for some institutions) that up to 8% of the income their endowment gift generates each year will be redirected to the federal government through taxes. Donors are now reconsidering endowment giving in favor of immediate-use (or current-use) giving. With uncertainty around endowments growing, it’s a great time to reevaluate our dichotomous approach to stewardship for donors who make immediate-use and/or endowment gifts.
Institutions often show their fundraising teams and their prospective donors that gifts to endowment are their favorite gifts to receive. These are the gifts that:
donors can name for themselves or someone important to them
are publicized on scholarships, fellowships, professorships, maps, buildings, schools, and institutes
qualify for personalized stewardship
earn their donors VIP status for events and communications
generate expressions of institutional gratitude again and again to the donors and, in many cases, to donors’ families after their deaths
Typically, immediate-use gifts receive only a baseline stewardship response: a tax receipt and, for larger gifts, one acknowledgment letter shortly thereafter. Donors may also be listed on that year’s honor roll of donors (although those are becoming less common) or be recognized in an annual giving society. In rare cases an immediate-use donor may name their gift, such as a term-limited scholarship, and receive stewardship with each yearly payment.
Based on the stewardship differentiation, we might infer that the endowment donor will have a much bigger impact on the institution. But to assess impact fully, we should look at expendable income and timeframe.
The Timing of Donor Impact
Weighing donor impact in a single year
It's easy to see that the immediate-use gift has far greater impact than an endowment gift of the same size in the year in which they are given. A $10,000 immediate-use gift provides the institution with $10,000 to spend immediately; a $10,000 endowment gift provides the institution with roughly $500 to spend in year one. It takes $200,000 of endowment to generate roughly the same spending power that year.
But endowment is forever (at least that is the intention, notwithstanding recent tax law changes and the precipitous losses that resulted from the 2008-2009 Great Recession), so the endowment donor surely merits greater and repeated recognition. Endowment gifts are invested, with the hope that annual return rates will be at least inflation + 5 percent, allowing the institution to pay out 5 percent of the value to the annual budget and reinvest the remainder, without dipping into the principal. This is designed to ensure that the endowment’s value will increase over time or at least continue to provide the same level of funding.[1] (Years ago, I was taught that the default endowment investment goal was to achieve an 8-percent return, with inflation assumed to be about 3 percent.)
Each year, NACUBO (the National Association of College and University Business Officers) partners with the Commonfund Institute on a Study of Endowments. The most recent report, released in February 2025 and including 658 institutions, showed that the 10-year net annualized endowment return was 6.8 percent while the 25-year net annualized endowment return was 6.1 percent. Here's a look at the impact of a gift directed to the endowment, using these return rates as well as the 8-percent target return I consider the default.
Using the 25-year net annualized endowment return and an annual spending rate of 5 percent, it would take nearly two decades for the total of all annual distributions to equal the amount of the original gift. The payout figures below are based on a $10,000 endowment gift.
| Annualized Return Rate | Wait Time for Yearly Payouts to Add Up to Original Gift Amount | Total Yearly Payouts |
|---|---|---|
| 8.0% | Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 ------------ 16 years |
$500.00 $515.00 $530.45 $546.36 $562.75 $579.64 $597.03 $614.94 $633.39 $652.39 $671.96 $692.12 $712.88 $734.27 $756.29 + $778.98 ----------- $10,078.44 |
| 6.8% | 18 years | $10,518.58 |
| 6.1% | 19 years | $10,501.79 |
I was shocked when I calculated the time required for the single-year payout to equal the original gift amount. With a 6.1 percent annualized rate of return, you would have to wait 275 years (longer than the US has been a nation) for the single-year distribution from the endowment to reach the amount of the donor’s original gift. And these calculations don’t even take inflation or potential endowment taxes into account. (I acknowledge, of course, that the cumulative impact over those 275 years would be expendable income totaling almost 38 times the size of the initial gift.)
| Annualized Return Rate | Wait Time for Single-Year Payout to Equal Original Gift Amount |
|---|---|
| 8.0% | 103 years |
| 6.8% | 169 years |
| 6.1% | 275 years |
NACUBO reported that the average endowment spending rate in FY24 was 4.8 percent, with private institutions reporting a higher average (5.2 percent) than their public counterparts (4.2 percent). Both lower spending rates and lower investment returns would extend the wait time to match the spending power of an immediate-use gift of the same size.
Putting It into Practice: Scholarship Naming Opportunities
The most common donor designation for endowment gifts is student financial aid; almost 50 percent of the $873.7B in endowment dollars reviewed by NACUBO were for that purpose. The minimum gift required to establish an endowed undergraduate scholarship at US colleges and universities ranges from $10,000 to $250,000, which translates to $200-$12,750 (one-twentieth of the gift’s value) to support students in year one. In recognition of the full cost to educate a student, some universities have started marketing higher-level endowed scholarship opportunities designed to cover a year of tuition or a student’s total annual expenses; these scholarships often require contributions of $1M or more (spinning off $50,000+ in year one).
Institutions may also offer donors the opportunity to create term-limited immediate-use scholarships; some require a multiyear commitment while others allow donors to fund them for just one year.
A review of institutional websites showed that the ratio of the minimum yearly payment required create an endowment to the immediate-use yearly minimum gift is often 2 to 1 (i.e., immediate-use donors qualify for stewardship for giving half of the endowment minimum over the same time period). The chart below shows data for ten selected institutions with names withheld. In some cases, such as schools 1 and 2 below, immediate-use donors must make larger gifts than endowment donors to get the same stewardship. At school 3, the payment sizes are equal. In these scenarios, we would expect potential donors to direct their gifts to endowment. In contrast, schools 9 and 10 require immediate-use donors to contribute only 20 percent of the minimum endowment payment each year; this makes the immediate-use gift equal to the anticipated 5 percent payout from the endowment when it is fully funded. Recalling the illustration above, the year-one impact scale would be in balance.
| School | Endowment Min | Min Endowment Payment (x5) | Immediate-Use Min | Ratio of Endowment Pymt to Immediate-Use Pymt |
|---|---|---|---|---|
| 1 | $50,000 | $10,000 | $25,000 | 1 to 2.5 |
| 2 | $25,000 | $5,000 | $10,000 | 1 to 2 |
| 3 | $250,000 | $50,000 | $50,000 | 1 to 1 |
| 4 | $100,000 | $20,000 | $15,000 | 1.3 to 1 |
| 5 | $100,000 | $20,000 | $10,000 | 2 to 1 |
| 6 | $250,000 | $50,000 | $25,000 | 2 to 1 |
| 7 | $50,000 | $10,000 | $2,500 | 4 to 1 |
| 8 | $100,000 | $20,000 | $4,500 | 4.4 to 1 |
| 9 | $250,000 | $50,000 | $10,000 | 5 to 1 |
| 10 | $25,000 | $5,000 | $1,000 | 5 to 1 |
Devising Your Approach
Establishing minimum gift amounts is about both marketing and stewardship. Offering more stewardship for one type of gift over another encourages fundraisers to seek—and donors to select—the “more appreciated” gift. If growing your endowment is key, using stewardship to help demonstrate the priority placed on these gifts can be the right strategy. If immediately expendable funds are the focus at your institution, you can weigh the stewardship scale to those gifts.
There is an argument to be made that endowment donors should receive some a “discount” on their endowment contributions versus immediate-use gifts to acknowledge the long-term impact they will have. But we should consider this alongside the size of the donor’s contribution, the impact and its timing on the institution’s budget as we establish naming opportunities and their associated stewardship for immediate-use and endowment giving. I’d love to hear how you and your institution think about this question and where you’ve landed.
Tammie L. Ruda
[1] It’s slightly more complicated than this; to buffer the endowment against market volatility (good and bad), many institutions base their endowment payout on a three-year rolling average. You can learn more about endowment management practices and policies from NACUBO.
