What is an endowment? These days, says nonprofit investment expert Brad Offman, it's still the organization's savings account-but that can mean almost anything that satisfies the charity and the donor.

"I have no clue what an endowment agreement looks like in this new world," he told delegates to Being Good@Doing Good, held in Toronto in February. Gone is the requirement to hold an endowment for at least ten years. A three-year spend is OK, Offman says, and so is a requirement for perpetuity. It all comes down to your charity's agreement with the individual donor.

And agreement is the key word. An existing agreement may be renegotiated, he emphasizes, but it must never be violated. As an example, he cited a gift he facilitated to support an endowed professorship. The university and the donor renegotiated the agreement to allow the university to tap the capital of the gift. With more money available, the university was able to hire the professor earlier, serving the donor's purpose and the institution's needs sooner.

Pros and cons still apply

Even in this free, new world of endowment arrangements, some principles still hold. The advantages of an endowment haven't changed. Ideally, it ensures program continuity by offering a long-term cash flow. It smooths out the peaks and valleys of traditional fundraising, creating a safety net and decreasing fundraising costs. And it testifies to the charity's strength and stability.

On the downside, an endowment gift can be a tougher sell for many donors. They're aware that only a small portion of their donation supports the cause in any given year. Watchdogs question the full tax break donors receive even though the gift isn't fully used right away. Some donors and prospects may believe that an organization with a healthy endowment has sufficient funding without their support.

Most charities, Offman, explains, sit somewhere between those two extremes. Those who succeed at endowment building make it a strategic imperative supported by the board and the senior staff, and founded on patience.

Bringing home the (endowment) bacon

Endowment fundraising is often synonymous with planned giving or legacy fundraising, but Offman believes charities that integrate legacy gifts into their existing fund development culture will benefit most. The key, he says, is ongoing conversations with donors about how they can help the organization most powerfully.

Charities that take an intentional road towards endowment building should be very sure that an endowment is the best use of the organization's capital. They will need a strong case for support, one that highlights how an endowment will benefit the charity in ways that steady annual fundraising can't. They must decide how the endowment will be funded; a campaign and an allotment from every legacy are just two of many possibilities.

Patience essential in grilled endowment sandwich

Developing an endowment is a lot like making a grilled cheese sandwich, Offman concludes. With a healthy dose of time on your side, a committed board is the bread, some senior staff support, the butter, and a plateful of trained, accountable fundraisers, the cheese. "Be very patient," he warns. "Wait for the bread to toast and the cheese to melt."

Brad Offman is the VP, strategic philanthropy, at Mackenzie Investments.