Methods of Funding Endowed Chairs

Classic Chair

This is the simplest and most common way of funding a chair. The chair is funded by outright gifts of cash and/or securities, paid in either one lump sum or over a three to five year period. For the most part, this type of funding is chosen during a donor’s lifetime.

Example

• A donor makes a $2 million pledge to endow a chair.

• The donor fulfills the pledge over four years with annual payments of $500,000.

• SAS can begin a search for a chairholder as soon as it has received $1 million in pledge payments.

Bridge Chair

This method combines an initial outright gift to endowment with annual term payments equal to the interest income that would be available to support the chair while the initial endowment gift grows to a fully funded chair. This method works well for people who may not have the available resources to fund a Classic Chair. It also works well for people who may need to make a charitable donation with a windfall in one year, then set up a more moderate and regular schedule of gifts over a period of time.

Example

• A donor makes a $2 million pledge for an endowed chair.

• The donor makes an initial payment of $1 million, thus enabling a search to begin for the right professor to hold the chair. The initial payment is invested in the University’s Associated Investment Fund, and all interest income on the fund is returned to principal to help it grow to $2 million. (Average annual market performance is 10 percent, so it would take, on average, about 10 years for the gift to reach that level.)

• In the meantime, once a chairholder has been chosen, the donor begins making annual term gifts equivalent to the amount of spendable interest income the University would have available, if the chair were fully funded. This annual gift funds the professor until the time that the original investment of $1 million has doubled. This could also be funded with a charitable lead trust, which could bring greater tax benefits to the donor.

Planned Chair

This chair offers greater flexibility in making a gift to endow a chair, maximizing an individual’s or a couple’s estate planning needs. It can incorporate the characteristics of both Classic and Bridge chairs.

Example A

• In his/her will, the donor includes a bequest to Penn of either an outright dollar amount ($2 million) or a percentage of an estate, stipulating that it is to be used to establish an endowed professorship.

• The University receives the bequest upon the settlement of the estate and can then begin to search for a professor. If the price of a chair has escalated by the time the bequest is received, the University would most likely invest the annual income until the endowment principal reaches the level of funding.

Example B

• A donor wishes to establish a chair through his/her estate, but also wants to provide for grandchildren. In this case, the donor could provide an outright bequest to Penn of $1 million towards a chair, then set up a charitable lead trust through his/her estate that would provide Penn with an additional $1 million to be paid over a set number of years.

• At the end of the period, the trust’s principal would revert back to the grandchildren, to be divided among them according to whatever guidelines were established.

Family Chair

This method is designed for Penn families with many generations of alumni. It enables the chair to be funded by more than one donor: parents, children, and grandchildren can each make contributions to the same fund. They can take advantage of the characteristics of the other models, depending on which satisfies the family circumstances best.