All long-term funds are not created equal

Because long-term funds can be set up in various ways and have varying degrees of flexibility to adapt to unforeseen circumstances, it’s necessary to think through the details very carefully.

Types of Endowment Funds

Capital Restricted Fund:  In this fund, the principal is held in perpetuity and the only payout allowed is income— defined by tax legislation as interest, dividends and net capital gains—as long as it meets the charitable disbursement quota set by the Canada Revenue Agency. 

Capital Fund: Although the principal in this fund is held in perpetuity, income and/or capital may be paid to the arts organization, subject to the discretion of the foundation trustee/board of directors. These payments are typically established based on long-term investment results, and a portion of income can be retained to protect the value of the capital against inflation.

Donor Advised: This fund is held by the trustee and capital/income is paid out as directed by the donor of the fund. The donor may choose to make this decision on an annual basis or give the trustee discretion, within certain guidelines. 

Award/Scholarship: This fund is held in perpetuity, with the income used to fund specific awards/scholarships for artistic merit, achievement or support for arts related education. The fund can be structured so that a specific dollar amount is provided for annually. 

Capital-Fixed Term Fund: This fund is established and the capital invested as usual.  However, in this case, both the income and capital are specified to be fully paid out over a stated period of years – say, 10 or 20 years, or during the lifetime of the donor.

Field of Interest: A long-term fund is established to provide support to an arts discipline; i.e., music, dance, theatre, visual arts, in contrast to a specific arts organization. The donor may choose to support a range of arts organizations and will provide the fund trustee with guidelines on who these organizations are or how to identify potential arts recipients.