D R A F T
FOR DISCUSSION ONLY
OVERSIGHT OF CHARITABLE ASSETS ACT
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
For February 12 – 13, 2010 Committee Meeting
Without Prefatory Note and with Comments
Copyright © 2010
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
____________________________________________________________________________________________
The ideas and conclusions
set forth in this draft, including the proposed statutory language and any
comments or reporter’s notes, have not been passed upon by the National
Conference of Commissioners on Uniform State Laws or the Drafting
Committee. They do not necessarily
reflect the views of the Conference and its Commissioners and the Drafting
Committee and its Members and Reporter.
Proposed statutory language may not be used to ascertain the intent or
meaning of any promulgated final statutory proposal.
February 5, 2010
DRAFTING COMMITTEE ON OVERSIGHT OF CHARITABLE ASSETS ACT
The Committee appointed by and
representing the National Conference of Commissioners on Uniform State Laws in
revising this Act consists of the following individuals:
KING K. BURNETT, P.O. Box 910, Salisbury, MD 21803-0910
JAMES BOPP, 1 S. 6th St., Terre Haute, IN 47807
MARY JO H. DIVELY, Carnegie Mellon University, Warner Hall, 6th Floor., 5000 Forbes Ave., Pittsburgh, PA 15213
BARRY C. HAWKINS, 300 Atlantic St., Stamford, CT 06901
LYLE W. HILLYARD, 595 South Riverwood Pkwy., Suite 100, Logan, UT 84321
THOMAS L. JONES, University of Alabama Law School, P. O. Box 865557, Tuscaloosa, AL 35486-0050
CARL H. LISMAN, 84 Pine St., P.O. box 728, Burlington, VT 05402
JOHN J. MCAVOY, 3110 Brandywine St., NW, Washington, DC 20008
FREDERICK P. STAMP, U.S. District Court, P.O. Box 791, Wheeling, WV 26003
DAVID S. WALKER, Drake University Law School, 2507 University Ave., Des Moines, IA 50311
LAURA B. CHISOLM,
Case Western Reserve University, 11075 East Blvd., Cleveland, OH 44106, Reporter
EX OFFICIO
ROBERT A. STEIN, University
of Minnesota Law School, 229 19th Avenue South, Minneapolis, MN 55455, President
BARRY C. HAWKINS,
300 Atlantic St., Stamford, CT 06901, Division
Chair
AMERICAN BAR ASSOCIATION ADVISOR
BETSY B. ADLER,235 Montgomery St., Suite 1220, San Francisco, CA 94104-3103, ABA Advisor
SUSAN N.
GARY,University of Oregon School of Law, 1515 Agate St., Eugene, OR 97403, ABA Section Advisor
CYNTHIA ROWLAND, One Ferry Bldg., Suite 200, SanFrancisco, CA 94111, ABA Section Advisor
LISA A. RUNQUIST, 17554 COMMUNITY St., Northridge, CA 91325-3922, ABA Section Advisor
EXECUTIVE DIRECTOR
JOHN A. SEBERT,
Copies of this Act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
312/450-6600
www.nccusl.org
OVERSIGHT OF CHARITABLE ASSETS ACT
TABLE OF CONTENTS
SECTION 3. [ATTORNEY GENERAL]
AUTHORITY TO PROTECT CHARITABLE ASSETS.
SECTION 4. REGISTER OF
CHARITIES.
SECTION 5. PUBLIC INSPECTION OF
REGISTER.
SECTION 6. INVESTIGATION BY THE
[ATTORNEY GENERAL].
SECTION 7. NOTICE TO [ATTORNEY GENERAL].
SECTION 9. ATTORNEY GENERAL PARTICIPATION IN PROCEEDINGS
INVOLVING CHARITIES.
SECTION 10. COOPERATION WITH
OTHER OFFICIALS.
SECTION 11. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COMMERCE ACT.
OVERSIGHT OF CHARITABLE ASSETS ACT
SECTION
1. SHORT TITLE. This [act] may be
cited as the [Uniform][Model] Oversight of Charitable Assets Act.
SECTION
2. DEFINITIONS. In this [act]:
(1) “Charitable asset” means real or personal property that has been
given or solicited for charitable purposes.
(2) “Charity” means a
corporation, trust, unincorporated association, or other legal entity holding
or administering property for or solicited for charitable
purposes, whether pursuant to corporate articles of incorporation,
trust declaration or agreement, will, or other instrument, which is organized
under the laws of this state, has its principal place of business in this
state, or holds substantial charitable assets within this state. A corporation, trust, unincorporated
association or other legal entity organized under the laws of another state is
not a “charity” for purposes of this [act] by reason
of maintaining a bank, custody, investment, or similar account in this state. [A financial institution or investment
company is not a “charity” for purposes of this act by
reason of holding charitable assets in accounts that belong to other persons.]
(3) “Charitable fiduciary” means:
(A) a chief executive officer, director, manager,
officer, or trustee of a charity; or
(B) a person holding
property for or property solicited for any charitable purpose.
(4) “Charitable purpose”
means the relief of poverty, the advancement of education or religion, the
promotion of health, the promotion of a governmental purpose, or any other
purpose the achievement of which is beneficial to the community.
(5) “Document” means
information that is inscribed on a tangible medium or that is stored in an
electronic or other medium and is retrievable in perceivable form.
(6) “Person” means an
individual, corporation, business trust, estate, trust, partnership, limited liability
company, association, joint venture, public corporation, government or
governmental subdivision, agency, or instrumentality, or any other legal or
commercial entity.
Comment
Subsection
(2). Charity. Charity is defined broadly in the
Act, with the definition explicitly including entities of any legal form that
hold or administer property dedicated to or solicited for charitable
purposes. The definition of “charity” is
broad enough to take in not only organizations traditionally thought of as
charitable, but also non-charitable organizations that hold or administer
assets dedicated to charitable purposes or that have been solicited for
charitable purposes. Because the
definition underlies the obligation to register with the attorney general, it
limits the term to organizations that have significant contacts in the state. The
drafting committee believes that the threshold strikes an appropriate balance
between the risk of overburdening charities that have little contact with a
particular state and the need for the attorney general to be alerted to the
existence of charitable organizations and assets in the state that might call
for oversight. Simply having a bank or
investment account in the state does not cause an entity to fall within the
definition, and financial institutions and investment companies are not
included within the definition by virtue of having accounts owned by charities.
Subsection (3). Charitable fiduciary. The definition includes any legal entity holding property dedicated to charitable purposes or property solicited for charitable purposes, as well as an officer, director, trustee, or manager of a charity. Thus, it would include, for instance, a financial institution or investment company that holds accounts belonging to charities. The term “charitable fiduciary” comes into play in the act only in the context of breach of fiduciary duty to a charity; thus, the broader reach of the term is appropriate.
Subsection
(4). Charitable purposes. The definition of charitable purpose follows
that of UTC § 405, Restatement (Third) of Trusts § 28 (2003), and UPMIFA § 2(1)
(2006). This long-familiar standard
derives from the English Statute of Charitable Uses, enacted in 1601.
Some 17 states have created
statutory definitions of charitable purpose for various purposes. See,
e.g., 10 Pa. Cons. Stat. § 162.3 (2005) (defining charitable purpose within
the Solicitation of Funds for Charitable Purposes Act to include “humane,” “patriotic,” “social
welfare and advocacy,” and “civic” purposes).
The definition in subsection (4) applies for purposes of this Act and
does not affect other definitions of charitable purpose.
Subsection
(5). Document. Document is defined, using the Uniform Law
Commission standard definition, in order to use one word instead of several
when the act deals with papers, reports, instruments, and records, and to make
clear that information in electronic form is included.
Subsection
(6). Person. The Act uses as the definition of person
the definition approved by the Uniform Law Commission.
(a) It is the duty of the [attorney general] to
represent the public interest in the protection of charitable assets, to
enforce the due application of assets held by a charity
to the purposes for which the entity is established or for which the assets
were given to the entity, and to prevent and correct breaches of fiduciary duty
in the administration of charities by charitable fiduciaries.
(b) The powers and duties of the [attorney
general] provided in this [act] are in addition to any other powers and duties
arising from the common law or other statutes, and are not intended to limit or
restrict the authority of the [attorney general] or the rights of others provided
by common law or statute.
(c) The [attorney general] may conduct an
investigation or bring an action to enjoin, correct, obtain damages for, or
seek other remedy to:
(1) prevent or correct the diversion of
charitable assets;
(2)
remedy a departure from the purposes for which a charity
is established or for which charitable assets were given to the entity;
(3) prevent or correct a breach of fiduciary duty
in the administration of a charity or by a charitable fiduciary; or
(4) enforce the provisions of this [act].
Comment
One of the major goals of the Act is to articulate the attorney general’s oversight authority to protect charitable assets. In most states, whether or not that function is embodied in a statute, the authority is inherent in the common law powers of the attorney general. In at least a few states, however, it has been held that no such common law authority exists, and in some other states, whether it exists and what it consists of is not so clear. The drafting committee intends that the Act clarify and articulate attorney general authority to protect charitable assets. At the same time, that authority is not unlimited. The attorney general’s legitimate role is to correct abuses, but not to take over governance or to substitute the attorney general’s judgment for the legitimate judgment of the charity’s board or trustees; to protect the interests of the indefinite beneficiaries of charity, while recognizing that charitable assets are private, not quasi-public property; and to protect the donor’s expressed intent and hold the charity to its expressed purposes.
Subsection (b) reflects the
committee’s desire to articulate that the statute does not replace any common
law or other statutory powers the attorney general may have. The language of this provision also specifies
that the act does not limit or restrict the rights of others provided by common
law or statute. Thus, existing (or
evolving) state law with respect to standing of those other than the attorney
general is undisturbed by the Act.
(a) The [attorney general] shall establish and
maintain a register of charities.
(b) Every charity that has
received property for charitable purposes
shall register with the [attorney general] within [30 days, 2 months, 3 months,
6 months] after the date the charity first receives
possession or control of property of which any part of the income or principal
is authorized or required to be expended, either presently or in the future, for
charitable purposes, or the effective date of
this [act], whichever is earlier.
(c) The registration must include:
(1)
the name, address, and statutory agent of the entity;
(2)
a short statement of the charity’s purpose;
(3) a true copy of the charity’s
articles of incorporation, trust instrument, or other instrument creating the
entity; and
(4) a true copy of the charity’s
by-laws.
Comment
The main thrust of the 1954 Uniform
Supervision of Trustees for Charitable Purposes Act was to provide a
mechanism to facilitate the supervisory role of the Attorney General by
providing for registration that would alert the Attorney General to the
existence and administration of charitable trusts. This Act continues to incorporate that
function. The drafting committee has
opted to keep the registration obligation simple, so as to avoid overburdening
either charitable organizations or attorney generals’ offices. It is expected that the registration function
will move to an electronic system, thereby dissipating some of the burden. Only entities that meet the Act’s definition
of “charity”- that is, entities organized in the state, having a principal place of business in the state, or holding
substantial charitable assets in the state – have the obligation to register in
the state. While a large organization
that operates in many states will likely have an obligation to register in
multiple states, the committee hopes that the Act’s move toward uniformity will
minimize the burden of multiple registrations.
SECTION 5. PUBLIC INSPECTION OF
REGISTER. The register and documents
filed with the [attorney general] pursuant to Section 4 [and periodic reports,
if act ultimately incorporates periodic reporting requirement] are matters of
public record and shall be open to public inspection, subject to reasonable
regulation by the [attorney general], except that:
(a) the [attorney general] shall withhold from
public inspection copies of any report filed with any other governmental agency
of this state, another state, the United States, or any government subdivision
thereof which is required by law to be kept confidential; and
(b) the [attorney general] shall, upon the
written request of a charity or charitable fiduciary, withhold from public inspection any
part of a document filed which does not relate to charitable purposes or charitable assets and that is not
otherwise a public record.
Comment
Charity regulators involved in the drafting process noted that availability of information to the public serves an important function. The Act opens the registration and supporting documents to the public, with the exception of documents made confidential by any other law and, upon request of a charity or charity fiduciary, any part of a document that does not relate to charitable assets and is not otherwise a public record.
SECTION
6. INVESTIGATION BY THE [ATTORNEY
GENERAL]. When it appears to
the [attorney general] that it is in the public interest, the [attorney
general], on behalf of the state, may conduct an investigation to ascertain:
(a) whether a charity
or charitable fiduciary has caused a
misapplication of charitable assets;
(b) whether a charity
has departed from the charitable purposes
for which it was formed or to which property is specifically dedicated;
(c) whether a charitable
fiduciary has committed a breach of fiduciary duty.
Comment
The Act articulates the Attorney
General’s authority to undertake an investigation as a means of fulfilling the
duty articulated in Section 3. The
committee discussed the threshold for initiating an investigation. Some states (e.g., Massachusetts) require the
court approval or a sworn complaint prior to beginning an investigation. Others do not, and specify no particular
threshold standard to justify commencing an investigation. The committee concluded that a less demanding
threshold standard is appropriate.
Information often comes to the attorney general in a form much less
formal than a sworn complaint; for example, information about abuses and
misdeeds is often brought to light in newspaper stories. The committee was sensitive to the burden
that an investigation can impose on a charity, but concluded that a reasonable amount of discretion and
flexibility in the attorney general is more often likely to diminish the burden
on charities than to justify inappropriate intrusion.
There is variation among the states,
specified elsewhere in statutes, as to process and procedure relating to
attorney general investigative authority.
It is expected that states adopting the Act will appropriately
cross-reference this section with the appropriate statutory provisions.
(a) Amendment of governing documents. Every charity registered
with the [attorney general] shall file with the [attorney general] any
amendment to its articles of incorporation, trust instrument, or other document creating the entity within [20, 30, 60 days] after
adoption of the amendment if the amendment changes the purposes of the entity
or results in a material change to the structure, governance, or activities of
the entity.
(b) Dissolution.
(1) A charity that is a
corporation must give written notice to the [attorney general] that it intends
to dissolve at or before the time it delivers articles of dissolution to the
[secretary of state] pursuant to [dissolution provisions of nonprofit
corporation statute]. The notice must
include a copy of the plan of dissolution.
(2) No assets may be transferred in connection
with the dissolution process until the earlier of:
(A) twenty days after the notice required by
subsection (1) has been delivered to the [attorney general];
(B) the charity’s receipt of
the [attorney general]’s consent in writing to the plan of dissolution; or
(C) the charity’s receipt of
written notice that the [attorney general] will take no action with respect to
the transfer.
(3) When substantially all of the assets of a charity have been transferred pursuant
to a plan of dissolution, the charity shall deliver
to the [attorney general] a list of the names and addresses of those, other
than creditors, to whom the assets were transferred. The list must include a description of what assets
each transferee received.
(c) Disposition of assets. A charity shall give
written notice to the [attorney general] at least [20, 30, 60] days before it
sells, leases, exchanges, or otherwise disposes of all or substantially all of
its property unless:
(1) the transaction or series of transactions
that result in the transfer is in the usual or regular course of the charity’s activities; or
(2) the [attorney general] has given the charity a written waiver of this section.
(d) Merger.
A charity shall give written notice to the
[attorney general] at least [20, 30, 60] days before the consummation of any
merger with any other entity. The notice
must include a copy of the proposed plan of merger.
(e) Termination of charitable trust. A charity that is a
trust shall give notice to the [attorney general] no later than [20, 30, 60]
days before the termination of the trust pursuant to [provision in trust
statutes allowing termination of small trust] or the document
establishing the trust.
(f) Estate distribution. Whenever an estate involves, or may involve,
the distribution of property to a charity or cause the
creation of a charity, the [probate court] shall at
the time of the distribution of the estate forward to the [attorney general] a
true copy of the decree of distribution.
(g) State tax exemption. An officer, agency, board, or commission of
this state or political subdivision that receives applications for exemption
from taxation of charitable entities shall:
(1) annually provide the [attorney general] with
a list of all applications approved during the year; and
(2) notify the [attorney general] of any
revocation or suspension of tax-exempt status previously granted.
Comment
The drafting committee chose to forgo
elaborate registration and reporting requirements in favor of requiring notice
to the attorney general of a variety of transactions and events that raise
particular opportunities for misdirection of charitable assets, so that the
attorney general has an opportunity to monitor the events in time to prevent problems
in addition to correcting problems that have already arisen.
Subsection
(a) requires a charity to file with the attorney general any
amendment to its governing documents that changes the purpose of the charity or
results in a material change to the structure, governance, or activities of the
charity. [Need examples here of “material”
changes]. Subsections (b) though (e) specify a variety of circumstances that
involve the termination of a charity or the rearrangement of charitable
assets that require notice to the attorney general by the charity. Subsection (f) requires the probate
court (or equivalent body) to notify the attorney general of the distribution
of an estate that may involve the distribution of charitable assets. Subsection
(g) provides for annual notification to the attorney general of approvals
of applications for charitable exemption from state and local tax, as well as
revocations of charitable tax exemptions.
The obligation to notify the attorney general is placed on officers and
agencies that are responsible for evaluating and acting on tax exemption
applications.
SECTION
8. NOTICE OF PROCEEDINGS CONCERNING
CHARITABLE ENTITIES, CHARITABLE FIDUCIARIES, AND CHARITABLE ASSETS. Any person who asserts a claim in any of the following kinds of
proceeding in any court of this state shall give written notice to the
[attorney general] [no later than the commencement of the proceeding]. The notice must include a copy of the
pleading.
(a) Any action against or on behalf of a charity brought pursuant to [nonprofit corporation statutes]
by someone other than the [attorney general].
(b) Any action against any charitable
fiduciary concerning the misapplication of charitable assets or the
breach of fiduciary duty owed to a charity.
(c) Any proceeding:
(1) seeking instructions relating to the
administration, use, or distribution of
charitable assets or income produced by charitable assets;
(2) seeking construction of an instrument under
which charitable assets are held; or
(3) seeking modification of the terms under which
charitable assets are held.
(d) Any proceeding affecting a charitable trust:
(1) seeking to terminate the trust;
(2) seeking instructions regarding the use or
distribution of charitable property;
(3) seeking to depart from the objects of the
trust or modify the administration of the trust, including a proceeding in
which the doctrine of cy pres or deviation is invoked; or
(4) seeking to remove or replace a trustee.
(e) Any proceeding to construe, nullify, or
impair the provisions of a testamentary or other instrument creating or
affecting a charitable trust in which matters affecting charitable assets may
be decided.
(f) Any proceeding relating to the probate and
administration of an estate involving a charitable trust which matters
affecting charitable assets may be decided.
(g) Any proceeding to contest or set aside the
probate of an alleged will under which property worth at least $25,000 is given
for charitable purposes.
Comment
The list of kinds of proceedings that require notice to the attorney general is adapted from provisions found in charitable corporation, trust, and probate sections of various state codes, although no one state provides model for the entire section. The drafting committee concluded that the attorney general ought to be made aware of a wide range of proceedings that might affect charitable assets or the structure or governance of a charity. [Might include examples here, too.]
The timing of the notice is described
in brackets as “no later than the commencement of the proceeding.” The committee expects that states adopting
the Act will tailor the language to be consistent with that state’s particular
rules of civil procedure.
(a) Whenever any provision of this [act], [the
nonprofit corporation statutes], or [other?] requires that notice be given to
the [attorney general] before or after commencing a proceeding or permits the
[attorney general] to commence a proceeding:
(1) if no proceeding has been commenced, the
[attorney general] may take appropriate action including seeking injunctive
relief; or
(2) if a proceeding has been commenced by a person other than the [attorney general], the [attorney
general], as of right, may intervene in the proceeding.
(b) The [attorney general] may join or enter into
a compromise, settlement agreement, contract, or judgment relating to a
proceeding involving a charity, charitable
property, or charitable fiduciary.
(c) A compromise, settlement agreement, contract,
or judgment relating to a proceeding involving a charity
is voidable on motion of the [attorney general] unless the [attorney general]
has declined in writing to be a party to the proceeding or approved the
compromise, settlement agreement, contract, or judgment.
Comment
This section articulates attorney
general authority to bring an action or intervene in a proceeding brought by
someone else. The committee intends to
make the attorney general a proper party to a wide array of proceedings
involving charities, charitable fiduciaries, or charitable assets, so that the
attorney general may exercise the discretion to participate or refrain from
participating in court proceedings that relate the attorney general duty and
authority under this Act.
(a) The [attorney general] may cooperate with any
official of this state, another state, the United States, or any political
subdivision or agency thereof charged with overseeing charitable entities or
charitable assets. In order to
cooperate, the [attorney general] may:
(1) notify the official of the commencement,
status, or resolution of an investigation or proceeding pursuant to this [act];
(2) make available to the official any statement,
document, or other information relating to a charity or charitable fiduciary
that is relevant to the official’s oversight of charitable entities and
charitable assets; or
(3) acquire from
the official statements, documents, or other
information relevant to an investigation pursuant to Section 6 or a proceeding
under Section 8.
(b) The custodian of the records of a court
having jurisdiction of probate matters or of charitable trusts and any
custodian of records of any department, agency, or political subdivision of
this state shall furnish to the [attorney general] copies of any records and
files relating to the subject of this act as the [attorney general] requires.
(c) Any statement, document,
or other information provided to another official or agency or received from
another official or agency pursuant to subsection (a) or (b) shall be withheld
from public inspection if the statement, document, or other
information is required or permitted to be kept confidential by the law of
either the sending or receiving government.
Comment
This section authorizes cooperation
between a state attorney general and relevant officials of other states and the
federal government. Subsection (b)
provides that the most protective confidentiality rules of the cooperating
governments will govern the confidentiality of shared information.
SECTION 11. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL
COMMERCE ACT. This [act] modifies,
limits, and supersedes the federal Electronic Signatures in Global and National
Commerce Act, 15 U.S.C. Section 7001, et seq., but does not modify, limit, or
supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or 36
authorize electronic delivery of any of the notices described in Section 103(b)
of that act, 15 U.S.C. Section 7003(b).
SECTION
12. [UNIFORMITY]. This act shall be construed so as to protect the
rights and interest of the people of the state and the uncertain and indefinite
beneficiaries of property dedicated to charitable purposes
and to promote uniformity of the law with respect to its subject matter in the
states that adopt it.
SECTION
13. EFFECTIVE DATE. This [act] takes
effect . . . .
SECTION
14. REPEAL. The following acts
and parts of acts are repealed.