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Add new comment all organizations I have worked with have their endowments set up separately both in funds and actual entities. My understanding is separating the endowed funds from the operations of the nonprofit (under a separate EIN and organization) protects the funds from being assets that could be included in the event the nonprofit were sued.

Normally, the principal of a permanently restricted fund like an endowment is protected from the claims of creditors, although the income may be subject to attachment by a creditor.  There is often an added layer of protection from separating reserve assets into a separate entity (See Ready Reference Page:  "Charities Often Restructure to Protect Corprate Assets") but it may not be practical for smaller organizations.  --Don Kramer

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