PROTECTION OF CHARITABLE ASSETS ACT

Prefatory Note

The Charitable Sector. [Importance of charitable sector in the U.S. and history of charitable sector in the U.S.] American charities provide a wide range of services and benefits – from arts organizations, to hospitals, to the relief of poverty, to educational institutions, to environmental protections. American charities manage substantial funds in conjunction with carrying out their charitable purposes, holding some funds for current operating needs and others as endowments. [cite to recent data] Charities carry out important functions, lessening the role of government in some cases and improving the quality of life for many people.

Public confidence in charities will help maintain the vibrancy of the charitable sector. If potential donors worry that charities will misuse contributed funds, donors are unlikely to contribute. The good work charities do will suffer if reports of abuse, fraud, or other types of misbehavior reduce public confidence in the sector.

The regulation of charities remains minimal, and yet the importance of public confidence in the sector points to the need for some modicum of oversight. In the charitable sector, self-regulation has always been important and will continue to be important. [note third sector report] The Internal Revenue Service has begun to increase its role in charitable supervision, by expanding the information required under the Form 990 annual report that many charities must file. In order to protect the role of the states in protecting charitable assets, the role of the Attorney General should be clarified.

Charity regulators in some states are more active than those in other states, but the committee has not seen evidence of overreaching by charitable regulators. Instead, the concern voiced by some observers of the sector is that many states should increase resources available to charity regulators, so they can do a better job of providing the appropriate level of oversight and protection. [A number of states have adopted legislation to elaborate on the common law. Many of these statutes are relative complex (cites), some require registration, as in the Uniform Supervision of Trustees for Charitable Purposes Act (1954) which this replaces. (cites). Other states with legislation include_____________________].

Goals of the Act. The Uniform Protection of Charitable Assets Act will articulate and confirm the role of the state Attorney General in protecting charitable assets. The Attorney General’s oversight function exists in most states in the common law or by statute, but in some states the scope of the authority is unclear. The Attorney General’s authority is broad and this Act will not limit or narrow that authority.

The Act will provide the Attorney General with at least an inventory of basic information without overburdening the charities or the Attorney General with excessive reporting requirements. The Act specifies which transactions and legal proceedings require notice to the Attorney General and provides for registration and annual reports for some charities. It is based on a rather minimalist or basic platform, designed for those states that lack any significant legislation, although all states can benefit from its concepts and clarity.

The term “Attorney General” is used to mean the charity regulator in a state. In many states, the Office of the Attorney General has a division called the Charity Section or something similar. A lawyer in that section typically has the title Assistant Attorney General, but the person in that role may have a different title.

It is useful to remember that the Attorney General has an educational role and a facilitative role as well as a regulative role. Attorneys General now generally educate charities and work with charities to help them become more efficient and more effective. The Attorney General will be better able to perform these roles with adequate information about the charities operating in the state.

Which Charities Does the Statute Cover? The Attorney General has authority to protect all charitable assets in a state and oversight over all charities registered in a state, so the Act logically applies broadly to charities. Certain sections of the Act (registration, reporting, and notice) apply more narrowly. The Act does not cover governmental entities and businesses, except to the extent that those non-charities hold charitable assets.

General Authority of the Attorney General. The Act states the broad duty of the Attorney General to represent the public interest in the protection of charitable assets. The Act states that the Attorney General may enforce the use of charitable assets by a charity for the purposes for which the assets were given to the charity, may take action to prevent or correct a breach of a fiduciary duty in connection with the administration of a charity or charitable assets, and may intervene in an action brought to correct a misapplication of charitable funds, a departure from the purpose of the charity, or a breach of a fiduciary duty owed the charity.

Registration. A charity covered by the registration section must register with the Attorney General within a specified period of time after the charity receives property. The charity must provide basic information about the charity (name, address, statutory agent, federal identification number, and contact person) and a copy of the charity’s organizing document (articles of incorporation or trust instrument). The Act includes a one-page statutory form of registration.

Annual Reports. Charities with assets above a minimum amount will file an annual report with the Attorney General. The annual report will provide basic information and will require that the charity attach a copy of any report the charity files with the Internal Revenue Service (e.g., a Form 990 or a Form 990-EZ).

Notice of “Life Events.” One of the concerns the Drafting Committee sought to address was the problem that occurs when an Attorney General learns about the loss of charitable assets after a charity has disposed of the assets. The Act requires a charity to file a notice of the following, a specified number of days [20, 30 or 60 days] before the event occurs. Events that require notice include the following:

Any amendment to the charity’s organizational document, if the amendment changes the purposes or results in a material change in the structure, governance, or activities of the charity.
The intent to dissolve or terminate, with a copy of the charity’s plan of dissolution. The charity cannot transfer assets until the earlier of receiving written consent from the Attorney General, written notice that the Attorney General will take no action, or the passage of time [20 days]. After dissolution, the charity must file with the Attorney General a description of the assets transferred and a list of the names and addresses of those who received the assets, other than creditors. [this is not currently in the act – should it be?]

The intent to sell, lease, exchange, or otherwise dispose of all or substantially all of its property, unless the transaction is in the regular course of the charity’s activities or the Attorney General waives this requirement.

The intent to merge with any other entity. The notice must include a copy of the proposed plan of merger.

A decision to file for bankruptcy (no later than the date of the filing).

Receipt of a notice of revocation or modification of a federal, state, or local tax exemption (within a specified period of time after receipt).

In addition, the personal representative of an estate or the trustee of a trust that involves the distribution of property to a charity must send the Attorney General a copy of the will or a description of the charitable interests in the trust.

Any person who asserts a claim in a proceeding involving a charity or charitable assets must give written notice to the attorney general if the value of the charitable assets involved is at least $25,000. The notice must include a copy of the pleading. The proceedings that require notice are the following:

An action against or on behalf of a charity seeking to enforce the use of charitable assets or the breach of a duty owed to the charity;

A proceeding seeking instructions relating to the administration, use, or distribution of the charitable assets;

A proceeding to construe a document under which charitable assets are held or to modify the terms under which charitable assets are held;

A proceeding involving a trust or probate estate in which matters affecting charitable assets may be decided; or

A proceeding to remove or replace a trustee of a charitable trust.

Cooperation with Other Officials. The Act permits the Attorney General to cooperate with any official of the state, of another state, or of the United States. The Attorney General can provide information or documents concerning an investigation or proceeding to the other official in connection with the other official’s role in the oversight of charities and charitable assets. The Attorney General can also acquire information or documents from the other official.

PROTECTION OF CHARITABLE ASSETS ACT

SECTION 1. SHORT TITLE. This [act] may be cited as the [Uniform][Model] Protection of Charitable Assets Act.

SECTION 2. DEFINITIONS. In this [act]:

(1) “Charitable asset” means property that is [irrevocably dedicated][legally committed

or held] for a charitable purpose.

(2) “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.

(3) “Person” means an individual, corporation, business trust, statutory 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.

(4) “Record” 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.

(5) “Responsible individual” means an individual who, with respect to a person holding charitable assets:

(A) is generally familiar with the affairs of the person; and

(B) participates, directly or indirectly, in the control or management of the person or, in the case of a person being formed, will participate in the control or management of the person.

(6) “State” means [get standard definition].

Comment[SG1]

Subsection (1). Charitable Asset. The term property includes all interest in real or tangible or intangible personal property, including remainder interests and conservation or preservation easements or restrictions.

Subsection (2). Charitable purposes. The definition of charitable purposes 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 reasons. 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 (3). Person. The Act uses as the definition of person the definition approved by the Uniform Law Commission. The definition includes individuals as well as entities. Charities are typically organized as nonprofit corporations or charitable trusts and both are included within this definition.

Subsection (4). Record. Record is defined, using the standard Uniform Law Commission standard definition, in order to use one word instead of several when the act deals with traditional forms of paper, as well as information in electronic form.

Subsection (5). Responsible Individual. This term describes someone the Attorney General could contact for information about the charity. Often the Attorney General will be able to resolve a question about a charity’s use of assets informally, and having someone identified as a contact person for the charity will make that informal discussion more efficient and effective. A responsible individual should be someone who is generally familiar with, among other things, how the charity is managed but the person need not be a director or trustee. The definition is based on one in the Uniform Law Enforcement Access to Entity Information Act (2009).

SECTION 3. AUTHORITY OF [ATTORNEY GENERAL] TO PROTECT CHARITABLE ASSETS.

(a) The [Attorney General] represents the [public interest] [interest of the public] in the protection of charitable assets.

(b) The [Attorney General] may:

(1) enforce the application and prevent the misapplication or diversion of a charitable asset in accordance with:

(A) the purposes or terms, if any, for which the asset was given; and

(B) the charitable purposes of a person holding charitable assets; and

(2) act to prevent or remedy a breach of fiduciary or other legal duty:

(A) in the governance, management, or administration of a charitable asset; or

(B) in the governance of a person organized primarily for charitable purposes;

(3) seek declaratory, injunctive, or other equitable relief to determine that an asset is a charitable asset;

(4) commence or intervene in an action to:

(A) prevent, remedy, or obtain damages for a violation of this [act]; or

(B) seek other remedy to enforce this [act].

(c) The [Attorney General] may conduct an investigation, including exercising administrative subpoena power, if the [Attorney General] has reason to believe the investigation is necessary to determine whether action may be advisable under this [act].

(d) This [act] does not limit the powers and duties of the [Attorney General] under law of this state other than this [act].

Comment

One of the major goals of the Act is to articulate the Attorney General’s protection authority over 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 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.

Section (b)(1)(B). Although a charity’s purposes need not be static, the terms of the organizing documents in effect at the time the charity receives assets constrain the use of those assets.

Legislative Note: States vary with respect to process and procedure relating to Attorney General investigative authority. States that detail Attorney General subpoena power in code sections dealing broadly with Attorney General power will have no need for this section. States that provide in their codes for Attorney General civil subpoena power specifically in connection with another Attorney General function (such as consumer protection) can use that language in this section with any necessary adaptations. In many states the Attorney General has civil jurisdiction but not criminal jurisdiction. For example, in Connecticut the Attorney General is the civil charitable regulator but if the Attorney General wishes to initiate a criminal proceeding the Attorney General must do so through the chief state’s attorney. In other states (e.g. Maryland) the county state’s attorney has general criminal jurisdiction. The committee also needs to determine whether the addition of a new crime in this subsection is appropriate. In some states crimes can only be created in the criminal code.

Subsection (d) 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.

[add discussion of relator statutes and consider adding a legislative note for states with relator statutes]

The Act does not, either expressly or by implication, affect existing law concerning the rights of persons other than the [Attorney General] to standing in connection with a matter involving a charity.

SECTION 4. REGISTRATION.

(a) The [Attorney General] shall establish and maintain a registry of persons required to register under this section.

(b) A person is required to register under this section if the person holds or administers charitable assets in excess of $5,000 and:

(1) is organized under the law of this state or if it is a trust has its situs in this state;

(2) has its principal place of business in this state;

(3) holds charitable assets in this state other than assets held primarily for investment purposes;

(4) conducts activities in this state; or

(5) holds assets that are given or committed to the benefit of a person in this state.

(1) a government, governmental subdivision, agency, or instrumentality;

(2) an organization the primary purpose of which is to influence elections;

(3) a financial institution, investment company, or storage facility that holds charitable assets that belong to another person;

(4) an individual holding a charitable asset other than in a fiduciary capacity;

(5) a [personal representative] of a decedent’s estate that holds a charitable asset, during the period of administration of the estate;

(6) a trustee of a revocable trust that becomes irrevocable because of the settlor’s death, during a period of administration following the settlor’s death not to exceed one year[.][; or]

Alternative A

[(7) a religious organization that holds property for religious purposes, an agency or organization affiliated with and directly supervised by the religious organization, or an officer, director, or trustee of the religious organization which holds property in an official capacity for religious purposes.]

Alternative B

[(7) [religious organization as defined by Internal Revenue Code].]

End of Alternatives

(d) The following activities do not constitute conducting activities in this state within the meaning of section (b)(4):

(1) maintaining, defending, mediating, arbitrating, or settling an action or proceeding;

(2) holding a meeting of trustees, directors, or members;

(3) maintaining an account in a financial institution or an investment account;

(4) owning, without more, real or personal property;

(5) conducting an isolated transaction that is completed in not more than 30 days and is not in the course of similar transactions;

(6) soliciting or accepting contributions; and

(7) making a grant to a person in this state.

(e) A person required to register under this section shall register with the [Attorney General] not later than [three] months after the date the person receives charitable assets in excess of $[5,000].

(f) The registration required by subsection (b) must include:

(1) the name and address of the person;

(2) the name and address of the statutory agent of the person or the individual on whom service of process may be made;

(3) the name and address of a responsible individual of the person; [and]

(4) the federal employer identification number, if any, for the person[.][;]

[(5) if the person is organized primarily for charitable purposes, a copy of the person’s articles of incorporation and bylaws, trust instrument, or other record, if any, that serves as the organizational document of the person; [and]

(6) if the person is not organized primarily for charitable purposes, a copy of the portion of the person’s articles of incorporation and bylaws, trust instrument, or other record, if any, that relates to the use and administration of the charitable asset held by the person.][; and]

[(7) whether the person has registered under [the state’s solicitation statute] and if so, under what name and under what registration number, if any.]

(g) The registry established pursuant to subsection (a) and records filed with the [Attorney General] are public records, except that the [Attorney General] shall:

(1) withhold from public inspection a record or any part of a record filed with the [Attorney General] or with a governmental agency of this state, another state, or the United States, or any governmental subdivision thereof, which is required by law to be kept confidential; and

(2) on the written request of a person required to register under this section, withhold from public inspection a record or any part of a record filed which does not relate to a charitable purpose or charitable assets and is not otherwise a public record.

[(h) The [Attorney General] may collect a filing fee of $[15.00] with the registration required by this section and a late fee of $[100.00]. The funds collected will be used for services provided for under this [act]. The [Attorney General] may extend the time for filing for good cause shown.]

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 Attorneys General. It is expected that the registration function will move to an electronic system, thereby reducing some of the burden. Electronic registration will be sufficient to meet the requirements of Section 5, and the Drafting Committee hopes that states will be able to accommodate electronic registration. 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. The Act includes a statutory form of registration so that states can ease the burden on charities by adopting a requirement that is consistent across states.

Registration is important for several reasons. First, the list of registered charities can serve as a quick resource of information for the Attorney General and for the public. If the Attorney General receives a question from a member of the public, the Attorney General may be able to answer the question simply by reviewing the information provided in the registration. No further inquiry may be necessary, and both the Attorney General and the charity will save time and expense.

Also, a potential donor may consult the list of registered charities to determine whether a charity requesting a donation is current in its filings with the Attorney General. If the charity is not registered, the donor will want to investigate further before making a donation. If the charity has consistently made the required filings, that information suggests a well-managed charity, with fiduciaries who comply with their duties.

Finally, the requirement to register serves as a reminder to someone organizing a charity of the seriousness of the fiduciary role an individual undertakes when acting as a director or trustee of a charity. If the individual does not want the responsibility of managing charitable assets under the oversight of the Attorney General, the individual can give the assets to an existing charity or start a donor advised fund.

Subsection (b) sets forth which organizations will be required to register under the Act. The registration requirement applies to entities of any legal form that hold or administer property dedicated to or donated for charitable purposes. The scope of the requirement 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 donated for charitable purposes. The obligation to register is limited 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 account 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, unless the institution serves as trustee for a charity.

The term “principal place of business” is used to mean principal place of administration, governance, activities, and operation. Although using the term “business” for charitable activities sounds odd, the term is used to bring with it the substantial caselaw connected with the term.

Although the types of contact listed in subsection (b) are not limited by the terms “substantial” or “significant,” the intention is that a negligible level of activity or other contact not be considered sufficient to cause an Attorney General to assert protection powers. The state constitution will control the level of activity necessary for Attorney General protection.

Subsection (b)(2)(A) excludes governments from the Act, but if a government accepts an asset for charitable purposes, the Act will provide oversight for that asset. For example, a local government might accept the donation of land for a public park or might accept a conservation easement over land in the state.

Subsection (b)(2)(C) excludes persons not organized primarily for charitable purposes. The Drafting Committee intends to exclude entities like benefit corporations and L3Cs even though those entities may be established in part for charitable purposes. The committee also intends to exclude labor organizations, social organizations, and trade associations.

Subsection (b)(2)(F) excludes individuals who may hold charitable assets as volunteers but not in a fiduciary capacity. For example, a volunteer might hold assets in connection with a school’s PTO fundraiser. The PTO will register, but a volunteer who holds assets connected with the fundraiser do not need to register.

Subsection (d) indicates that the threshold amount for filing is $5,000. The Drafting Committee chose this amount because it is the same as the amount that necessitates filing a Form 1023, Recognition of Exempt Status, with the Internal Revenue Service. The information required to register with the Attorney General is significantly less than the information required to complete a Form 1023, so an organization should not face an undue burden if required to register with the Attorney General.

Legislative Note to Subsection (g) – if a state FOIA statute requires more here, then add. In some states an amendment to FOIA may be necessary. Some states will delete.

SECTION 5. ANNUAL REPORT.

(a) A person required to register under Section 4 which holds charitable assets valued in excess of $[5,000] at the end of the person’s most recent accounting period or has total revenue in excess of $[--] for the person’s most recent accounting period shall file with the [Attorney General], not later than 5 months and 15 days after the end of the person’s accounting period, a report providing and certifying the accuracy of the following information:

(1) a current list of the names of the individuals responsible for the management of the person;

(2) the person’s total revenue for its most recent accounting period;

(3) the person’s total assets as of the last day of its most recent accounting period;

(4) a description of the person’s most significant program activities, not exceeding three activities, during the accounting period;

(5) a copy of any amendment during the accounting period of the person’s articles of incorporation and bylaws, trust instrument, or other record that serves as the person’s organizational documents;

(6) whether during the accounting period the person:

(A) engaged in a reportable event under Section 6;

Alternative A

[(B) entered into a contract, loan, lease, or other financial transaction with an officer, director, trustee, or other fiduciary, either directly or with an entity in which the officer, director, trustee, or other fiduciary had a material financial interest;]

Alternative B

[(B) entered into a financial transaction that materially benefits an officer, director, trustee, or other fiduciary, other than a transaction related to the individual’s role as a fiduciary, or entered into a financial transaction that materially benefits an entity in which the fiduciary had a material financial interest;]

End of Alternatives

(D) became aware of use of a charitable asset to pay any penalty, fine, or judgment;

(E) became aware of the payment by an officer, director, trustee, or other fiduciary of a penalty, fine, or judgment with respect to the person; and

(F) became aware of the use of restricted funds for a purpose other than the purpose specified in the restriction;

(7) an explanation of any affirmative answer reported under paragraph (6); and

(8) a change to any information provided under Section 4.

(b) If the person is required to file a Form 990, Form 990-PF, or Form 990-EZ with the Internal Revenue Service, then the person shall attach a copy of the form to the annual report.

Comment

Many charities will be able to meet the annual report requirement of Section 6 simply by filing a copy of the federal tax return the charity files. If the charity files a Form 990, Form 990-EZ, or a Form 990-PF, the charity may file a copy of that return and need not file an additional report. If the charity files Form 990-N, the charity will need to file an additional report, because the Form 990-N does not request a significant level of information. This draft states the requirement without reference to specific tax return numbers because the return numbers may change over time. The difficulty with stating the requirement in this way, however, is to convey the idea that a return that provides information similar to that required by this section (Form 990, Form 990-EZ, Form 990-PF) is sufficient but a return that provides only a minimal level of information (Form 990-N) is not. The committee will compare the requirements of Section 6 with the requirements of the tax returns and consider whether to require information beyond that listed in the tax returns.

The Internal Revenue Code requires a private foundation to file a copy of its Form 990-PF, IRC 6033(c)(2), with the state, so we should be able to exempt private foundations who already file that form with the state. The committee needs to consider this exemption, but the committee will likely be able to exempt private foundations from Section 6.

States that require annual reporting under a statute that regulates charitable solicitation will want to coordinate the report required here with that required by the solicitation statute and may find the reporting requirement in Section 6 duplicative and unnecessary.

The drafting committee did not reach consensus on the optimal threshold for the small organization exception. Some committee members noted that the reporting requirement can encourage good governance, and some members also noted that the small organizations are often the ones that get into trouble. The Attorney General needs to receive information in a timely fashion to be able to address problems before charitable assets are lost. The registration and reporting requirements are important in promoting appropriate protection of charitable assets.

SECTION 6. NOTICE TO [ATTORNEY GENERAL] of Reportable event.

(a) A person required to register under Section 4 shall give notice in a record to the [Attorney General] not later than [20] [30] days before a reportable event occurs.

(b) The following are reportable events under this section:

(1) a dissolution of the person;

(2) a termination of the person;

(3) a disposition by the person of all or substantially all of the person’s charitable assets;

(4) the consummation of a merger, conversion, or domestication;

(5) a removal of the person from the jurisdiction of this state; or

(6) a removal of significant charitable assets from this state.

(c) A transfer of a charitable asset in connection with an event described in subsection (b) which occurs earlier than [20] days after delivery of the notice required by subsection (a) to the [Attorney General] shall be a violation of this [act] unless before the transfer the person receives the consent of the [Attorney General] in a record to a proposed transfer or the person receives notice in a record that the [Attorney General] will take no action regarding the transfer.

(d) If a decedent’s estate opened by a court in this state involves, or may involve, the distribution of property to a person holding or authorized to hold charitable assets, the [personal representative], not later than [ninety] days after the date the [personal representative] is appointed, shall deliver to the [Attorney General] a copy of the will; a copy of the petition for probate or application for unsupervised probate; and a copy of the inventory, or if none is filed with the court, then a statement of the estimated value of the estate, unless the distribution is a specific devise with a value of less than $100,000 to a named person holding charitable assets.

(e) If a revocable trust having its principal place of administration in this state becomes irrevocable [because of the settlor’s death] and if it provides for a distribution of property to a person holding or authorized to hold charitable assets, the trustee, not later than [ninety] days after the date of the settlor’s death, shall deliver to the [Attorney General] a description of the charitable interests and a statement of the estimated value of the trust assets, unless the distribution is a specific distribution with a value of less than $100,000 to a named person holding charitable assets.

(f) A person required to register under Section 4 shall give notice in a record to the [Attorney General] not later than [20] days after receipt of any notice of revocation, modification, or denial of its federal or state [income] tax exemption.

Comment

The Act requires notice to the Attorney General of a variety of transactions and events that raise particular opportunities for misapplication 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). Disposition or removal of all or significantly all assets. If the charity will terminate or dispose of substantially all of its assets, the charity must notify the Attorney General before the charity gives up control of the assets. This notice provision gives the Attorney General time to review the proposed transaction and recommend changes if necessary while the assets can still be reached. If the Attorney General objects to the proposed transaction, the Attorney General must deliver the objection to the charity in writing and then the charity cannot proceed with the transaction until the Attorney General consents (presumably after negotiations between the charity and the Attorney General) or a court approves the transaction. This subsection gives the Attorney General the information needed to work with the charity on an appropriate plan of distribution or other transfer, and then provides for a court determination if the Attorney General and the charity cannot reach agreement.

Subsection (c) Probate estate. If a probate estate contains a gift to a charity, the personal representative must notify the Attorney General of the distribution of an estate that may involve the distribution of charitable assets. This provision is necessary, because the public’s interest in a charitable bequest may not be protected if an heir contests the will and the Attorney General does not know that a charitable bequest existed.

Subsection (d). Revocable trust. If a decedent’s property will be distributed through a revocable trust rather than through probate, the Attorney General should still get notice of any significant charitable gifts. The amount that is “significant” is left in brackets for states to consider. The Drafting Committee thought that gifts to charity worth at least $25,000 collectively represented a “significant” charitable interest.

Subsection (e). Bankruptcy. The [Attorney General] should be aware of a charity’s decision to file for bankruptcy so that the [Attorney general] can protect the public’s interest in the charitable assets. [Moved to Section 8]

Subsection (f)(1). Revocation of tax exemption. The revocation of a federal or state tax exemption may signal problems with a charity that the Attorney General should consider. This subsection requires provides for notification to the Attorney General of revocation or modification of a charity’s exempt status for any tax purpose.

Subsection (f)(2). Amendment. This subsection 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. For example, a charity should report a change in voting structure, either the elimination of a class of voting members or the creation of voting members. [Add examples of other “material” changes].

SECTION 7. NOTICE to attorney general OF action or PROCEEDING.

(a) This section applies to:

(1) an action against or on behalf of a person holding a charitable asset seeking to enforce a term relating to a gift of a charitable asset;

(2) an action concerning the use of a charitable asset or a breach of duty or other obligation owed to a person holding a charitable asset;

(3) a proceeding by, against, or on behalf of a person holding a charitable asset for:

(A) instruction, injunction, or declaratory relief relating to the management, use, or distribution of a charitable asset;

(B) construction of a record under which a charitable asset is held;

(D) removal, appointment, or replacement of a trustee of a charitable trust;

(E) a challenge to the administration of or a distribution from a decedent’s estate or a trust in which matters affecting a charitable asset may be decided; and

(F) bankruptcy under Title 11 of the United States Code, receivership under [state receivership statute] or a similar receivership statute of another state, or any other insolvency proceeding.

(b) When a person commences an action or proceeding to which this section applies, the person shall give notice in a record to the [Attorney General]. The notice must include a copy of the initial pleading. An order, decree, or judgment rendered in an action in which notice is required by this section is not binding on the [Attorney General] if the notice has not been given.

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 a 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. For example, changing the membership structure by eliminating one or more classes of voting members, should require notification.]

Legislative Note: In states where the Attorney General is a necessary party to any or all of the kinds of actions addressed in this section, parts or all of the section will be unnecessary.

SECTION 8. EQUITABLE RELIEF. If a person required to register under Section 4, file an annual report under Section 5, provide notice of a reportable event under Section 7, or provide notice of an action or proceeding under Section 8 fails to do so, the [Attorney General] may seek appropriate equitable relief.

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.

SECTION 9. COOPERATION WITH OTHER OFFICIAL.

(a) The [Attorney General] may cooperate with an official of this state, another state, or the United States, or any political subdivision or agency of any of the foregoing, charged with the protection of charitable assets.

(b) The [Attorney General] may:

(1) notify an official described in subsection (a) of the commencement, status, or resolution of an investigation or proceeding pursuant to this [act];

(2) make available to the official information relating to a charitable asset which is relevant to the official’s protection of charitable assets; or

(3) request from the official information relevant to an investigation pursuant to Section 3.

Comment

This section authorizes cooperation between a state Attorney General and relevant officials of other states and the federal government.

SECTION 10. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and construing this uniform act, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among the states that enact it.

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 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. REPEALS. The following are repealed:

SECTION 13. EFFECTIVE DATE. This [act] takes effect . . . .