UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT
SECTION 1. SHORT TITLE. This [act] may be cited as the Uniform Management of
Institutional Funds Act.
SECTION 2.
DEFINITIONS. In this [act]:
(1) “Charitable
purpose” means the relief of poverty, the advancement of education or religion,
the promotion of health, the promotion of governmental purposes, or another
purpose the achievement of which is beneficial to the community.
(2) “Endowment fund” means an institutional fund, or
any part thereof, not wholly expendable by the institution on a current basis
under the terms of a gift instrument. The term includes two or more endowment
funds collectively managed. The term does not include assets of an institution
designated by the institution as an endowment fund for its own use.
(3) “Gift instrument” means a record or records under
which property is granted to, transferred to, or held by an institution as an
institutional fund. The term includes an institutional solicitation in the form
of a record from which an institutional fund results when if
the solicitation indicates the intent of the institution that the solicitation constitute
a gift instrument and when if another record does not supersede the
solicitation.
(4) “Institution” means a nonprofit
corporation, trust, unincorporated association, or entity organized and
operated exclusively for charitable purposes. The term includes a government,
or governmental subdivision, agency, or instrumentality to the extent that it
holds its funds are held exclusively for a charitable purpose. The term
also includes a trust that has both charitable and noncharitable interests
after all noncharitable interests have terminated.
(5) “Institutional fund” means a fund
held for the exclusive use, benefit, and purposes of an institution. The term
includes two or more institutional funds collectively managed. The term does
not include: (A) program-related assets; or (B) a fund in which a beneficiary
that is not an institution has an interest, other than a right interests
that could arise upon violation or failure of the purposes of the fund.
(6)
“Person” means an individual, corporation, business trust, estate, trust,
partnership, limited liability company, association, joint venture, government,
governmental subdivision, agency, or instrumentality, public corporation, or
any other legal or commercial entity.
(67)
“Program-related asset” means an asset held by an institution primarily to
accomplish a charitable purpose of the institution and not primarily for
appreciation or for producing the production
of income.
(78)
“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.
Preliminary Comment
Subsection (1). Charitable Purpose.
The definition of charitable purpose
uses the same formulation as that in UTC § 405 and Restatement (Third Second)
of Trusts § 28 368 (2003 1959). The definition is the standard legal definition
of charitable purposes, developed from the definition of charity set forth in
the English Statute of Charitable Uses, enacted in 1601. Some 17 states have created statutory
definitions of charitable purpose for other purposes. See, e.g., [PA]. The definition in subsection
(1) applies for purposes of this Act and does not affect other definitions of
charitable purpose.
Subsection (2). Endowment fund.
An endowment fund is an institutional fund or a part of an institutional fund
that is not wholly expendable by the institution on a current basis. A
restriction on use that makes a fund an endowment fund arises from the terms of
a gift instrument. An institution may manage several funds together if the
funds all have the same purpose. These funds would be considered one endowment
fund for purposes of this Act.
Board-restricted funds are
institutional funds but not endowment funds. The rules on expenditures and
modification of restrictions in this Act do not apply to restrictions placed by
an institution on an otherwise unrestricted fund held by the institution for
its own benefit. The institution may be able to change these restrictions
itself, subject to internal rules and to the fiduciary duties that apply to
those that manage an institution.
If an institution transfers assets
designated as an endowment to another institution, then the second institution
will hold that fund as an endowment fund.
Subsection (3). Gift instrument.
The term gift instrument refers to the records that establish the terms of a
gift and may consist of more than one document. As used in this definition,
“record” is an expansive concept and means a writing in any form, including
electronic. The term includes a will, deed, grant, conveyance, agreement, or
memorandum, and also includes writings that do not have a donative purpose. For
example, under some circumstances the bylaws of the institution, minutes of the
board of directors, or canceled checks could be a gift instrument or be one of
several records constituting a gift instrument.
Solicitation materials may
constitute a gift instrument. For example, a solicitation that suggests in
writing that any gifts received pursuant to the solicitation will be held as an
endowment may be integrated with other writings and may be considered part of
the gift instrument. Whether the terms of the solicitation become part of the
gift instrument will depend upon the circumstances of the gift and whether a
subsequent writing superseded the terms of the solicitation.
The term gift instrument also
includes matching funds provided by an employer or some other person and
includes an appropriation by a legislature or other public or governmental body
for the benefit of an institution.
Subsection (4). Institution. The
Act applies generally to institutions organized and operated exclusively for
charitable purposes. The term includes
charitable organizations created as nonprofit corporations, trusts,
unincorporated associations, governmental subdivisions or agencies, or any form
of entity, however organized, that is organized and operated exclusively for
charitable purposes. As used in this definition, the term “trust” is intended
to mean a trustee acting under a charitable trust. The term includes a trust
organized and operated exclusively for charitable purposes, regardless of
whether a charity or a noncharitable corporation such as a bank acts as
trustee.
UMIFA (1972) did not include
apply to trusts managed by non-charitable
trustees. within its definition of institution. UMIFA (200-)
applies to trusts, to nonprofit corporations and to all entities operated for
charitable purposes regardless of their form of organization. UMIFA (200-)
appropriately includes trusts because the rules for the management and
investment of charitable funds should be the same regardless of the
organizational structure of the institution. Further, because the rules
applicable to the management and investment of funds in charitable trusts are
increasingly similar to those applicable to the directors of nonprofit
corporations, the rules are probably already the same. See [ALI introduction]. The application of
UMIFA (200-) to charitable trusts will benefit charities operated as trusts in
two ways. The endowment spending rules
of Section 4 will allow trusts to making spending decisions based on prudence
rather than on the characterization of funds as income or principal for trust
accounting purposes. The Drafting
Committee learned that under UMIFA (1972) charitable
trusts managed by corporate trustees have sought court approval to be treated
under the rules of UMIFA (1972).
Bringing trusts within the purview of UMIFA (200-) will reduce the cost
of managing charitable trusts.
UMIFA (200-) will also
benefit charities organized as trusts by making additional rules on
modification applicable to those charities.
The modification rules provide for more efficient management of
charitable funds, and should be available to
charities regardless of organizational form.
In other respects,
UMIFA (200-) will not alter the rules applicable to charitable trusts under
UPIA and the Principal and Income Act.
Charities organized as trusts are already subject to prudent investor
standards, either under UPIA (enacted uniformly in – states and in substance in
– states) or under common law standards of prudence. The prudence rules enacted in UMIFA (200-)
simply provide guidance to charities for investment decision making and do not
alter the rules already applicable to charitable trusts.
The definition of institution
includes governmental organizations that hold funds exclusively for the
purposes listed in the definition. Some organizations created by state
government may fall outside the definition due to the way in which the state
created the organizations. Because state arrangements are so varied, creating a
definition that encompasses all charitable entities created by states is not
feasible. States should consider the core principles of UMIFA (200-) for
application to governmental institutions. For example, the control over a state
university may be held by a State Board of Regents. In that situation, the
state may have created a governing structure by statute or in the state
constitution so that the university is, in effect, privately chartered. The
Drafting Committee does not intend to exclude these universities from the
definition of institution, but additional state legislation may be necessary to
address particular situations.
Subsection (5). Institutional
Fund. The term institutional fund includes any fund held by an institution
for its own use, benefit, or purposes, whether expendable currently or subject
to restrictions. The term also includes a fund held by a trustee that is not an
institution, if the fund is held exclusively for the benefit of an institution.
UMIFA (1972) excluded funds managed by 9 corporate trustees. The Drafting
Committee concluded that the provisions of UMIFA should be available to any
fund managed exclusively for charitable purposes.
A fund held by an institution is not
an institutional fund if any beneficiary of the fund is not an institution. For
example, a charitable remainder trust held by a charity as trustee for the
benefit of the donor during the donor’s lifetime, with the remainder interest
held by the charity, is not an institutional fund. However, this subsection
treats as an institution a charitable remainder trust that continues to operate
for charitable purposes after the termination of the noncharitable interests.
The Act will have only a limited effect on a charitable remainder trust during
the period required to complete the distribution of the trust’s property after
the noncharitable interest ends. The prudence norm will apply to the actions of
the trustee, but the trustee will make decisions about investment and
management of funds knowing that the trust will distribute its assets and not
continue indefinitely.
If a governing instrument provides
that a fund will revert to the donor if, and only if, the institution ceases to
exist or the purposes of the fund fail, then the fund will be considered an
institutional fund until such contingency occurs.
Subsection (6)(7).
Program-related asset. Although
UMIFA (200-) does not apply to program-related assets, if program-related
assets serve, in part, as investments for an institution, then the institution
should identify categories for reporting those investments and should establish
investment criteria for the investments that are reasonably related to
achieving the institution’s charitable purposes. For example, a program providing below-market
loans to inner-city businesses may be “primarily to accomplish a charitable
purpose of the institution” but also can be considered, in part, an
investment. The institution should
create reasonable credit standards and other guidelines for the program to
increase the likelihood that the loans would be repaid.
Subsection (7)(8).
Record. This definition was added to clarify that the definition of
instrument includes electronic records as defined in Section 2(8) of the
Uniform Electronic Transactions Act (1999).
SECTION 3. STANDARD OF CONDUCT IN
MANAGING AND INVESTING
INSTITUTIONAL
FUNDS.
(a) In managing and investing
an institutional fund, an institution must consider the terms of the gift
instrument, the charitable purposes of the institution, and the purposes of the
institutional fund.
(ab)
In addition to the duty of loyalty duties
imposed by law other than this [act], each personindividual
responsible for managing and investing an institutional fund must
shall manage and invest the fund: in a
manner the individual reasonably believes to be in the best interests of the
institution.
(1)
in good faith; and
(2)
with the care an ordinarily prudent person in a like position would exercise under similar circumstances.;
and
(3) in a
manner the individual reasonably believes to be in the
best interests of the institution.
(bc)
In managing and investing an institutional fund, an institution may incur only costs
that are appropriate and reasonable in relation to the assets, the purposes of
the institution, and the skills available to the institution.
(cd)
An institution shall make a reasonable effort to verify facts relevant to the management
and investment of an institutional fund.
(de)
Subsections (ef)
through (j k) are default rules and may be
expanded, restricted, eliminated, or otherwise altered by the terms of a gift
instrument.
(ef)
In managing and investing an institutional fund the following factors, if
relevant, must be considered:
(1) the
terms of the gift instrument;
(2) the charitable
purposes of the institution;
(3) the purposes of
the institutional fund;
(41)
general economic conditions;
(52)
the possible effect of inflation or deflation;
(63)
the expected tax consequences, if any, of investment decisions or strategies;
(74)
the role that each investment or course of action plays within the overall
investment portfolio of the institutional fund;
(85)
the expected total return from income and the appreciation of investments;
(96)
other resources of the institution;
(107)
the needs of the institution and the institutional fund to make distributions
and to preserve capital; and
(118)
an asset’s special relationship or special value, if any, to the charitable
purposes of the institution.
(fg)
An
institution’s Mmanagement
and investment decisions about an individual asset must be made not in
isolation but in the context of the institutional fund’s portfolio of
investments as a whole and as a part of an overall investment strategy having
risk and return objectives reasonably suited to the fund and to the
institution.
(h g) In
addition to an investment otherwise authorized by law or by a gift instrument,
and without restriction to investments a fiduciary may make, an institution,
subject to any specific limitations set forth in the gift instrument, In addition to an investment authorized by law
other than this [act], and subject to any specific restrictions set forth in
law other than this [act], an institution may invest in any kind
of property or type of investment consistent with the standards of this
section.
(i h) An
institution shall diversify the investments of an institutional fund unless the
institution reasonably determines that, because of special circumstances, the
purposes of the fund are better served without diversifying.
(j i)
Within a reasonable time after receiving property, an institution shall make
and implement decisions concerning the retention or disposition of the
property, or to rebalance a portfolio, in order to bring the institutional fund
into compliance with the purposes, terms, distribution requirements, and other
circumstances of the institution and the requirements of this [act].
(k j) An
individual who has special skills or expertise, or is named in reliance upon
the individual’s representation that the individual has special skills or
expertise, has a duty to use those
special skills or expertise in managing and investing institutional funds.
Preliminary
Comment
Purpose
and Scope of Revisions. This section adopts the prudence standard for
investment decision making. The section directs directors, trustees or others
responsible for managing and investing the funds of an institution to act as a
prudent investor would, using a portfolio approach in making investments and
considering the risk and return objectives of the fund. The section lists the
factors that commonly bear on decisions in fiduciary investing and incorporates
the duty to diversify investments absent a conclusion that special
circumstances make a decision not to diversify reasonable. Thus, the section
follows modern portfolio theory for investment decision making. Section 3
applies to all funds held by an institution, regardless of whether the
institution obtained the funds by gift or otherwise and regardless of whether
or not the funds are restricted.
The
Drafting Committee discussed at great length the standard that should govern
nonprofit managers. UMIFA (1972) states the standard as “ordinary business care
and prudence under the facts and circumstances prevailing at the time of the
action or decision.” Since the decision in Stern v. Lucy Webb Hayes National
Training School for Deaconesses, 381 F. Supp. 1003 (1974), the trend has
been to hold directors of nonprofit corporations to a standard similar to the
corporate standard but with the recognition that the facts and circumstances
considered include the fact that the entity is a charity and not a business
corporation.
The
language of the prudence standard adopted in UMIFA (200-) is derived from the
RMNCA and from the prudent investor rule of UPIA. The standard is consistent
with the business judgment standard under corporate law, as applied to
charitable institutions. That is, a manager operating a charitable
organization under the business judgment rule would look to the same factors as
those identified by the prudent investor rule. The standard for
prudent investment set forth in Section 3 first states the duty of care as
articulated in the RMNCA. The standard
then provides more specific guidance for those
managing and investing institutional funds by incorporating language from
UPIA. The factors and rules derived from
UPIA are consistent with good practice under current law applicable to
nonprofit corporations.
Trust
law norms already inform managers of nonprofit corporations. The Preamble to UPIA explains: “Although the Uniform Prudent Investor Act by
its terms applies to trusts and not to charitable corporations, the standards
of the Act can be expected to inform the investment responsibilities of
directors and officers of charitable corporations.” See
also, Restatement (Third) of Trusts:
Prudent Investor Rule § 379, Comment b, at 190 (1992) (stating “absent a
contrary statute or other provision, prudent investor rule applies to
investment of funds held for charitable corporations.”). Trust precedents have always been helpful
but not binding authority in a corporate cases.
The
Drafting Committee decided that by adopting language of from both the
RMNCA and UPIA, UMIFA (200-) could clarify that the same standards of prudent
investing apply to all charitable institutions. Although principal trust authorities, UPIA §
(2)(a), Restatement (Third) of Trusts §337, UTC § 804, and Restatement (Second)
of Trusts § 174 (prudent administration) use the phrase “care, skill and
caution” the Drafting Committee decided to use the more familiar corporate
formulation as found in RMNCA. The
Drafting Committee found no material difference between the trust standard and
the RMNCA standard of “care” which necessarily imports skill and caution. The Drafting Committee included the detailed
provisions from UPIA, because the Committee believed that the greater precision
of the prudence norms of the Restatement and UPIA as compared with UMIFA
(1972), could helpfully inform managers of charitable institutions. For an explanation of the Prudent Investor
Act, see John H. Langbein, The Uniform
Prudent Investor Act and the Future of Trust Investing, 81 Iowa L. Rev. 641
(1996).
Subsection (b) of
Section 3 reminds those managing and investing institutional funds that the
duty of loyalty will apply to their actions, but Section 3 does not state the
loyalty standard that applies. The
Drafting Committee was concerned that different standards of loyalty may apply
to directors of nonprofit corporations and trustees of charitable trusts. The RMNCA provides that under the duty of
loyalty a director of a nonprofit corporation should act “in a manner the
director reasonably believes to be in the best interests of the
corporation.” RMNCA § 8.30. The trust law articulation of the loyalty
standard uses “sole interests” rather than “best interests.” As the Restatement of Trusts
explains, “[t]he trustee is under a duty to the beneficiary to
administer the trust solely in the interest of the beneficiary.” Restatement (Second) of
Trusts § 170 (1). Although
the standards for loyalty, like the standard of care, are merging, see John H. Langbein [cite to new
article], the Drafting Committee concluded that incorporating the duty of
loyalty into UMIFA (200-) was unnecessary.
Thus the duty of loyalty under nonprofit corporation law will apply to
charities organized as nonprofit corporations, and the duty of loyalty under
trust law will apply to charitable trusts.
Section 3 has incorporated the provisions of UPIA with
only a few exceptions. UPIA applies to
private trusts and thus is entirely default law. A settlor of a private trust has complete
control over trust provisions. Because
UMIFA (200-) applies to charitable organizations, UMIFA (200-) makes the duty
of care, the duty to minimize costs, and the duty to investigate mandatory. The duty of loyalty is mandatory under other
law. In addition, subsection (a) of
Section 3 requires a decision maker to consider the terms of the gift
instrument, the charitable purposes of the institution and the purposes of the
institutional fund for which decisions are being made. These factors are specific to charitable
organizations, but UPIA § 2(a) states the duty to consider similar factors in
the private trust context.
As explained above, in
stating the standard of care, UMIFA (200-) uses language from the RMNCA rather
than UPIA. The change from UPIA’s
“reasonable care, skill and caution” to “in good faith and with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances” occurs in Sections 3, 4 and 5 of UMIFA (200-). The Drafting Committee does not intend any
substantive change to the UPIA standard and believes that “reasonable care,
skill, and caution” are implicit in the term “care” as used in the RMNCA. The standard expressed in UPIA §
2(a) appears in subsections (a) and (b) of Section
3.
UMIFA (200-) does not
include the duty of impartiality, stated in UPIA § 6,
because a charitable institution will not have more than one beneficiary.
In other respects, the Drafting Committee made
changes to language from UPIA only where necessary to make the language
appropriate for charitable institutions.
No material differences are intended.
Subsection (f)(4) of UMIFA (200-) does not include a clause at the end
of UPIA § 2(c)(4) (“which may include financial assets, interest in closely
held enterprises, tangible and intangible personal property, and real
property.”). The Drafting Committee
deemed this clause unnecessary for charitable institutions. The language of subsection
(f)(7) reflects a modification of the language of UPIA § (2)(c)(7). In subsection
(h) a reminder that terms of the gift instrument control was added to the formulation of UPIA § 2(e).
Other minor modifications to the UPIA provisions make the language more
appropriate for charitable institutions.
The
duties imposed by this section apply to those who govern an institution,
including directors and trustees, and to those to whom the directors or
managers delegate responsibility for investment and management of institutional
funds. The standard applies to officers
and employees of an institution and to agents who invest and manage
institutional funds.
Other
than the duty of loyalty, the duty of
care, the duty to minimize costs, and the duty to investigate act in good
faith, the provisions of Section 3 are default rules. A gift instrument or the
governing instruments of an institution can modify these duties, but the
charitable purpose doctrine limits the extent to which an institution or a
donor can restrict these duties.
Subsection
(a). Donor Intent and Charitable
Purposes. Subsection (a) states the overarching
direction to consider the donor’s intent as expressed in the terms of the gift
instrument and to consider the charitable purposes of the institution and of
the institutional fund. A donor’s intent
is always important guidance for the charity, but the direction to consider the
terms of the gift instrument does not mean that the donor can or should control
the management of the institution. The
UPIA counterpart of subsection (a) is UPIA
§ 2(a).
Subsection
(ab). Duty
of Loyalty and Duty of Care. This subsection applies the dutiesy
duty of loyalty and care
to performance of investment duties. The language derives from § 8.30 of the
RMNCA. Subsections (a)(1) and (2) state the
duty of care as the duty to act in good faith, “with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances.” Although the language in
the RMNCA and in UMIFA (200-) is similar to that of § 8.30 of the Model
Business Corporation Act (3d ed. 2002), the standard as applied to persons
making decisions for charities is informed by the fact that the institution is
a charity and not a business corporation.
Thus, in UMIFA (200-) the references to “like position” and “similar circumstances”
mean that the charitable nature of the institution affects the decision making
of a prudent person acting under the standard set forth in subsection (ab). The duty of care involves considering
the factors set forth in subsection (ef).
Subsection
(a)(3) states the duty of loyalty, using language from § 8.30 of the RMNCA. Under
existing laws the duty of loyalty requires a fiduciary acting on behalf of the
institution to make decisions in the interests of the institution and not in
the interests of the fiduciary or a third party. Trust law requires a fiduciary
to act solely in the interests of the beneficiary, while nonprofit law uses a
“best interests” standard. To the extent that trust law imposes a higher
standard with respect to the duty of loyalty, trust law will continue to govern
trustees who are subject to UMIFA (200-).
Subsection
(bc). Duty
to Minimize Costs. Subsection (c) tracks the language of UPIA § 7 and
requires an institution to minimize costs. An institution may prudently incur
costs by hiring an investment advisor, but the costs incurred should be
appropriate under the circumstances. See UPIA § 7 cmt.; Restatement
(Third) of Trusts: Prudent Investor Rule § 227, cmt. M, at 58 (1992);
Restatement (Second) of Trusts § 188 (1959). The duty is consistent with the
duty to act prudently under § 8.30 of the RMNCA.
Subsection
(cd). Duty
to Investigate. This subsection incorporates the traditional fiduciary duty
to investigate, using language from UPIA § 2(d). The subsection requires
persons who exercise authority to make investment and management decisions to
investigate the accuracy of the information used in making decisions.
Subsection
(ef).
Prudent Decision Making. Subsection (ef)
takes much of its language from UPIA § 2(a) and §
2(c). In making decisions about whether to acquire or retain an asset, the
institution should consider the institution’s mission, its current programs,
and the desire to cultivate additional donations from a donor, in addition to
factors related more directly to the asset’s potential as an investment. The
direction in subsection (e)(1) to consider the terms of the gift instrument
means that the institution must consider the donor’s intent in making decisions
under Section 3 but does not mean that the donor can or should control the
management of the institution.
Subsection (ef)(63)
reflects the fact that some organizations will invest in taxable investments
that may generate unrelated business taxable income for income tax purposes.
Assets held primarily for program-related purposes are not
subject to UMIFA (200-). The management of those assets will continue to be
governed by other laws applicable to the institution. Other assets may not be
held primarily for program-related purposes but may have both investment
purposes and program-related purposes. Subsections (e)(2),
(e)(3a), and
(e)(118)
indicate that a prudent decision maker can take into consideration the
relationship between an investment and the purposes of the institution and of
the institutional fund in making an investment that may have a program-related
purpose but not be primarily program-related. The degree to which an
institution uses an asset to accomplish a charitable purpose will affect the
weight given that factor in a decision to acquire or retain the asset.
Subsection (fg).
Portfolio Approach. This subsection reflects the spread of portfolio theory
in modern investment practice. The language comes from UPIA § 2(b), which
follows the articulation of the prudent investor standard in Restatement
(Third) of Trusts: Prudent Investor Rule § 227(a) (1992).
Subsection (g h).
Broad Investment Authority. Consistent with the portfolio theory of
investment, this subsection permits a broad range of investments. The reference
to investments “authorized by law other than this [act]” includes state
statutes creating legal lists for investments. This provision does not
contravene any other state statute that authorizes specific investments. The
language derives from UPIA § 12(be).
[Legislative Note: A state may want to delete the
clause “in addition to an investment authorized by law other than this [act]”
as unnecessary or may want to add a specific reference to other law.
Legislative counsel should review existing law to determine whether the
legislature should repeal existing rules on investments or should add a
specific reference to those rules here.]
Subsection (g h) also
provides that terms of a gift instrument or other law applicable to
institutions may limit the authority under this subsection. For example, the
gift instrument for a particular institutional fund might preclude the
institution from investing the assets of the fund in companies that produce
tobacco products.
Subsection (h i).
Duty to Diversify. This subsection assumes that prudence requires
diversification but permits an institution to determine that nondiversification
is appropriate under the circumstances applicable to a fund. A decision to retain property due to “special
circumstances” must be made based on the needs of the charity and not solely
for the benefit of a donor. A decision
to retain property in the hope of obtaining additional contributions from the
same donor will be considered made for the benefit of the charity. This subsection derives its language from
UPIA § 3. See UPIA § 3 cmt. (discussing the rationale for
diversification); Restatement (Third): Prudent Investor Rule § 227 (1992).
Subsection (i j ).
Disposing of Unsuitable Assets. This subsection imposes a duty on an
institution to review the suitability of retaining property contributed to the
institution within a reasonable period of time after the institution receives
the property. Subsection (ji)
requires the institution to make a decision but does not require a particular
outcome. The institution may consider a
variety of factors in making its decision, and a decision to retain the
property either for a period of time or indefinitely may be a prudent decision.
Section 4(2) of UMIFA (1972)
specifically authorized an institution to retain property contributed by a
donor. The comment explained that an
institution might retain property in the hope of obtaining additional
contributions from the donor. This
concept continues under UMIFA (200-), because the potential for developing
additional contributions by retaining property contributed to the institution
is one of the “other circumstances” the institution may consider in deciding
whether to retain or dispose of the property.
The institution must weigh the potential for obtaining additional contributions
with all other factors that affect the suitability of retaining the property in
the investment portfolio.
The language of subsection (ij)
comes from UPIA § 4, which restates Restatement (Third) of Trusts: Prudent
Investor Rule § 229 (1992), which itself took language from Restatement
(Second) of Trusts § 231 (1959). See UPIA § 4 cmt.
Subsection (j k).
Special Skills or Expertise. Subsection (j k)
states the rule provided in UPIA § 2(f) requiring a trustee to use the
trustee’s own skills and expertise in carrying out the trustee’s fiduciary
duties. The comment to RMNCA § 8.30 describes the existence of a similar rule
under the law of nonprofit corporations. [MORE] [E.
Brody will provide additional material for this
comment]
UMIFA (1972) contained two
provisions that authorized investments in pooled or common investment funds.
UMIFA (1972) §§ 4(3), 4(4). The Drafting Committee concluded that Section 3(g h)
of UMIFA (200-) authorizes these investments. The decision not to include the
two provisions in UMIFA (200-) implies no disapproval of such investments.
SECTION 4.
EXPENDITURE OF ENDOWMENT FUNDS; RULE OF CONSTRUCTION.
(a) Subject to the
terms of the gift instrument, an institution may expend or accumulate so much
of an endowment fund as the institution determines to be prudent for the uses,
benefits, purposes, and duration for which the endowment fund is established.
In making its determinations on expenditures and accumulations, the institution
shall act in good faith, with the care that an ordinarily prudent person in a
like position would exercise under similar circumstances, and shall consider,
if relevant, the following factors:
(1) the duration and preservation of the endowment fund;
(2) the purposes of the institution and the endowment fund;
(3) general economic conditions;
(4) the possible effect of inflation or deflation;
(5) the expected total return from income and the
appreciation of investments;
(6) other resources of the institution; and
(7) the investment policy of the institution.
(b) The expenditure in
any one year of an amount greater than seven percent of
the fair market value of the endowment fund, calculated on
the basis of market values determined at least quarterly
and averaged over a period of three or more years, shall create a rebuttable
presumption of imprudence. This
subsection does not limit the authority to expend funds as permitted under law
other than this [act] or the terms of
the gift instrument.
This subsection does not create a presumption of prudence for
expenditure of an amount less than seven percent of the fair market value of
the endowment fund. The presumption of
imprudence leaves to the institution the determination of the amount that will
be prudent to expend from an endowment fund.
(bc)
The following rules of construction apply to gift instruments existing on or
created after the effective date of this [act]:
(1) To limit the authority to expend or
accumulate funds under subsection (a), a gift instrument must specifically
state the limitation.
(2) Terms in a gift instrument designating a
gift as an endowment, or a direction or authorization in the gift instrument to
use only “income”, “interest”, “dividends”, or “rents, issues, or profits”, or
“to preserve the principal intact” or similar words, creates an
endowment fund of indefinite duration but does not
otherwise limit the authority to expend or accumulate under
subsection (a).
Preliminary
Comment
Purpose and Scope of Revisions. This section revises
the provision in UMIFA (1972) that permitted the expenditure of appreciation of
an endowment fund to the extent the fund had appreciated in value above the
fund’s historic dollar value. UMIFA (1972) defined historic dollar value to
mean the value of all contributions to the fund. The new approach abandons the
use of historic dollar value as a floor for expenditures and provides more
flexibility to the institution in making decisions about whether to expend any
part of an endowment fund. As under UMIFA (1972), a prudence standard applies
to the process of making decisions about expenditures from an endowment fund.
Subsection
(a). Expenditure
of Endowment Funds. Subsection (a)
uses the RMNCA articulation of the standard of care for decision making under
Section 4. The change in language does
not reflect a substantive change. The comment
to Section 3 more fully describes this standard of care.
Section 4 permits expenditures from an endowment fund to
the extent the institution determines that the expenditures are prudent after
considering the factors listed in subsection (a). These factors emphasize the importance of
keeping in mind the intent of the donor and the
purposes of the institution and of the endowment fund, in
mind while also considering economic conditions. As under UMIFA
(1972), expenditures determinations under
Section 4 do not depend on the characterization of assets as
income or principal and are not limited to the amount of income and unrealized
appreciation. The rule in
Section 4 is permissive, however, and an institution may continue to make
spending decisions under trust accounting principals if it prefers.
Institutions have operated effectively under UMIFA (1972)
and have operated more conservatively than the historic
dollar value rule would have permitted.
Institutions have no incentive to spend everything the law permits them to
spend, and good practice has been to provide for modest expenditures while
maintaining the purchasing power of a fund. Institutions have followed this
approach even though UMIFA (1972) does not require an institution to maintain a
fund’s purchasing power and allows an institution to spend any amounts in a
fund above historic dollar value, subject to the prudence standard. The
Drafting Committee concluded that eliminating historic dollar value and
providing institutions with more discretion would not lead to depletion of
endowment funds. Instead, UMIFA (200-) should encourage institutions to
establish a spending approach that will be responsive to short-term
fluctuations in the value of the fund. Section 4 allows an institution to
maintain appropriate levels of expenditures in times of economic downturn or
economic strength. In some years, accumulation rather than spending will be
prudent, and in other years an institution may appropriately make expenditures
even if a fund has generated no investment return that year.
Several levels of safeguards exist to prevent institutions
from depleting endowment funds or diverting funds from the purposes for which
they were created. Donors can restrict gifts and can provide specific
instructions to donee institutions as to appropriate uses for assets
contributed. Within institutions, fiduciary duties govern the persons making
decisions on expenditures. Those persons must operate with the best interests
of the institution in mind and in keeping with the intent of donors. If an
institution diverts an institutional fund from the charitable purposes of the
institution, the state attorney general can enforce the charitable interests of
the public. By relying on these safeguards while providing institutions with
adequate discretion to make decisions on appropriate expenditures, the Act
creates a standard that takes into consideration the diversity of the
charitable sector. The committee expects that industry standards will continue
to evolve and inform institutions as the institutions apply this standard.
Section 4 provides guidance on factors to consider in
exercising discretion but does not take away discretion by providing a
cap or floor for distribution. The Drafting Committee discussed whether to
provide a safe harbor for spending within a range based on
percentages of the assets of the fund. The Committee concluded that specifying
a range for appropriate distributions was unwise because a fixed range could
not take into account the factors listed in subsection (a) or changes in market
conditions. A fixed range that might be appropriate for some charities under
current economic conditions would be unlikely to remain appropriate over time.
Institutions have done a good job of developing spending policies under UMIFA
(1972) and should be able to continue to develop spending policies that take
into consideration the specific needs of a particular fund. Prudent decision
making after considering all the factors is the standard under UMIFA (200-). A
safe-harbor would simply create a new standard that could not take into account
the needs of individual institutions and funds.
Subsection (b). Presumption of Imprudence. Although prudence will dictate the amount an
institution should spend, subsection (b) creates a rebuttable presumption of
imprudence if expenditures in one year exceed seven percent of the assets of an
endowment fund. The statute applies a
three year rolling average in determining the value of the fund for purposes of
calculating the seven percent amount.
Endowment spending will rarely exceed seven percent, but the institution
can rebut the presumption of imprudence if circumstances in a particular year
make expenditures above that amount prudent.
The concept and the language for subsection (b) comes from Mass. Gen. L.
ch. 180A, § 2 (2004). Massachusetts enacted this rule in 1975 as
part of its UMIFA statute. New Mexico
adopted the same presumption in 1978. N.M.S.A. § 46-9-2 (C)
(2004).
The Drafting
Committee decided to include the presumption to
respond to concerns that the statute should include a bright-line rule, albeit
a rebuttable one, to curb the temptation to spend endowment assets too
rapidly. The subsection does not imply
that spending below 7 percent is prudent, and charitable institutions must
carefully consider the factors in subsection (a) before making a determination
on the prudent amount to spend. The
section does not require an institution to spend a minimum amount each year
because the prudence standard and the needs of the institution will be
sufficient guidance as to whether accumulation rather than spending might be
appropriate in a particular year.
As
subsection (b) indicates, spending less than seven percent of the value of an
endowment fund will not necessarily be considered prudent. Indeed, under many circumstances expenditures
at six or seven percent would be
imprudently high. Evidence discussed by
the Drafting Committee suggests that
few funds can sustain spending at a rate above five percent. See Roger G. Ibbotson
& Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation : Historical
Returns (1926-1987) (Research Foundation of the Institute of Chartered
Financial Analysts, 1989). Further,
spending at a lower rate, particularly in the early years of an endowment, may
result in greater distributions over time.
See DeMarche Associates, Inc,
Spending Policies and Investment Planning for Foundations: A Structure for
Determining a Foundation’s Asset Mix (Council on Foundations: 3d ed.
1999). Subsection (b) serves as a
reminder that spending at too high a rate will jeopardize the long-term nature
of an endowment fund. If an endowment
fund is intended to continue indefinitely, the institution should take special
care to limit annual spending to a level that protects the purchasing power of
the fund.
The Drafting Committee
also considered creating a presumption of imprudence if expenditures in one
year exceeded seven percent of the value of the endowment fund, averaged over
three years. The Committee decided
against a presumption of imprudence because of concerns that such a presumption
would lead to pressure to spend more than would be prudent. Although a presumption of imprudence does not
mean that spending below the presumptively imprudent amount is prudent, but
charities might well interpret the statute in that way. A charity might find itself under pressure to
spend close to the presumptively imprudent amount, even if such spending
exceeded prudent amounts. A presumption,
either of prudence or imprudence, might negatively affect the careful
consideration of an appropriate spending rate by charitable governing boards.
For a discussion of spending approaches,
see Joel C. Dobris, New Forms of Private Trusts for the Twenty-First
Century—Principal and Income, 31 Real. Prop., Prob. & Tr. J. 1 (1996).
For example, Dobris suggests spending 5% or 4% of a five-year moving average of
11 market values might be appropriate. Id., at 39.
The
term “endowment fund” includes funds that may last in perpetuity but also funds
that should continue for a fixed term of years or until the institution
achieves a specified objective. Section 4 requires the institution to consider
the intended duration of the fund in making determinations about spending. For
example, if a donor directs that a fund be spent over 20 years, Section 4 will
guide the institution in making distribution decisions. The institution would
amortize the fund over 20 years rather than try to maintain the fund in
perpetuity. For an endowment fund of
limited duration, spending at a rate above seven percent will be both necessary
and prudent.
Subsection
(c). Rule of Contruction. Donor’s intent must be
respected in the process of making decisions to expend endowment funds. Section
4 does not allow an institution to convert an endowment fund into a
non-endowment fund nor does the section allow the institution to ignore a
donor’s intent that a fund be maintained as an endowment. Rather, subsection (bc)
provides rules of construction to assist institutions in interpreting donor’s
intent. Subsection (bc)
assumes that if a donor wants an institution to spend “only the income” from a
fund, the donor intends that the fund both support current expenditures and be
preserved indefinitely. The donor is
unlikely to be concerned about designation of returns as “income” or
“principal” under accounting principles. Rather the donor likely assumes that
the institution will use modern investing strategies like total-return
investing to generate enough funds to distribute while maintaining the
long-term viability of the fund. Subsection (bc)
is
an intent effectuating
provision that provides default rules to construe donor’s intent.
A donor who wants to specify
spending guidelines can do so, but must do so specifically. For example, a
donor might require that a charity spend between three and five percent of an
endowed gift each year, regardless of investment performance or other
factors. If the charity agrees to the
restriction in accepting the gift, the restriction will govern spending decisions
by the charity. If a donor indicates
that the rules on investing or expenditures under Section 4 do not apply to a
particular fund, then as a practical matter the institution will probably
invest the fund separately. Thus, a decision by a donor to require specific
expenditure rules will likely also have consequences in the way the institution
invests the fund.
As a rule of construction, subsection (bc)
applies retroactively. Retroactive application is appropriate because
subsection (b) does not alter the substance of an existing contract, but rather
serves as a default rule that implements donor’s intent. The Colorado Supreme
Court recently considered the question of retroactive application of a default
statute involving the donative aspect of an insurance contract. See In
re Estate of DeWitt, 54 P. 3d 849 (Colo. 2002). In holding that the statute did
not violate the Contracts Clause, the court cited approvingly from a statement
prepared by the Joint Editorial Board for Uniform Trusts and Estates Acts (the
“JEB”). JEB Statement Regarding the Constitutionality of Changes in Default
Rules as Applied to PreExisting Documents, 17 Am. Coll. Tr. & Est. Couns.
Notes 184 app. II (1991). The JEB
Statement explains why retroactive application of default statutes is
appropriate and is not unconstitutional and states, “The JEB is aware of no
authority for the application of the Contracts Clause to state legislation
applying altered rules of construction or other default rules to pre-existing
documents in any field of law, and especially not in the field of estates,
trusts, and donative transfers.” Id. at 4 (citing J. Nowak & R.
Rotunda, Constitutional Law § 11.8, at 394 et seq. (4th ed. 1991)).
The Drafting
Committee considered concerns that retroactive application
of the construction provision might alter the intent of a donor who contributed
money to an endowment fund with the understanding that the institution could
never spend the actual amount contributed (the historic dollar value). Although the Committee
agreed that in some cases a donor might have specifically considered the
concept of historic dollar value, the Committee concluded
that the construction provision in UMIFA (200-) would effectively carry out the
intent of most donors.
The Drafting
Committee was also concerned that retaining the
historic dollar value concept for endowment funds in existence before the
enactment of UMIFA (200-) would require institutions to manage endowment funds
separately. For example, an institution
with an endowment fund for scholarships would have to create a new fund for
post-enactment contributions. Managing
two funds would result in economic inefficiencies and greater administration
cost for the institution. Further, an
institution with a fund created under UMIFA (1972) with a value below historic
dollar value might choose to invest in assets that produce trust accounting
income rather than appreciation.
Choosing investments based on the characterization of the income could
reduce the long-term yield of the fund.
SECTION 5. DELEGATION OF MANAGEMENT
AND INVESTMENT FUNCTIONS.
(a)
Subject to any specific limitation set forth in a gift instrument or in law
other than this [act], an institution may delegate to an external agent the
management and investment of an institutional fund that an institution could
prudently delegate under the circumstances. An institution shall act
in good faith, with the care that an ordinarily prudent person in a like
position would exercise under similar circumstances, exercise
reasonable care, skill, and caution in:
(1) selecting an
agent;
(2) establishing the
scope and terms of the delegation, consistent with the purposes of the
institution and the institutional fund; and
(3) periodically
reviewing the agent’s actions in order to monitor the agent’s performance and
compliance with the scope and terms of the delegation.
(b) In performing a delegated function, an
agent owes a duty to the institution to exercise reasonable care to comply with
the scope and terms of the delegation.
(c) An institution that complies with
subsection (a) is not liable for the decisions or actions of an agent to which
the function was delegated.
(d) By accepting delegation of a management
or investment function from an institution that is subject to the laws of this
state, an agent submits to the jurisdiction of the courts of this state in all
proceedings arising from the delegation.
(e) An institution may delegate to
committees, officers, or employees of the institution as authorized by law
other than this [act].
Preliminary Comment
This section incorporates into UMIFA
(200-) the delegation rule found in UPIA § 9, updating the delegation rules in
UMIFA (1972) § 5. Section 5 permits the decision makers in an institution to
delegate management and investment functions to external agents if the decision
makers exercise reasonable skill, care, and caution in selecting the agent,
defining the scope of the delegation and reviewing the performance of the
agent. Decision makers cannot delegate the authority to make decisions
concerning expenditures and can only delegate management and investment
functions. Subsection (c) protects decision makers who comply with the
requirement for proper delegation from liability for actions or decisions of
the agents.
Section 5 does not
address issues of internal delegation and potential liability for internal
delegation, and subsection (c) does not affect laws that govern personal
liability of directors or trustees for matters outside the scope of Section 5.
Directors will look to nonprofit corporation laws for these rules, while
trustees will look to trust law. See, e.g., RMNCA, § 8.30(b) (permitting
directors to rely on information prepared by an officer or employee of the
institution if the director reasonably believes the officer or employee to be
reliable and competent in the matters presented).
The language of
subsection (c) is similar to that of UPIA § 9(c) and RMNCA § 8.30(d). The decision not to include the terms
“beneficiaries” or “members” in subsection (c) does not indicate a decision
that this section does not create immunity from claims brought by beneficiaries
or members. Instead, a decision maker who complies with section 5 will be
protected from any liability resulting from actions or decisions made by an
external agent.
Subsection (d)
creates personal jurisdiction over the agent. This subsection is not a choice
of law rule.
Subsection (e) notes
that law other than this Act governs internal delegation. Section 5 of UMIFA (1972) included internal
delegation as well as external delegation, due to a concern at that time that
trust law concepts might govern internal delegation in nonprofit corporations.
With the widespread adoption of nonprofit corporation statutes, that concern no
longer exists. The decision not to address internal delegation in UMIFA (200-)
does not suggest that a governing board of a nonprofit corporation cannot
delegate to committees, officers, or employees.
Rather, a nonprofit corporation must look to other law, typically a
nonprofit corporation statute, for the rules governing internal delegation.
SECTION 6. RELEASE OR MODIFICATION OF
RESTRICTIONS ON USE OR INVESTMENT.
(a) For purposes of this section,
“institutional fund” includes a fund that is one of two or more institutional funds
collectively managed.
(b) With the consent of the donor in a
record, an institution may release, in whole or in part, a restriction imposed
by a gift instrument on the use or investment of an institutional fund. A
release may not allow a fund to be used for a purpose other than a charitable
purpose of the institution.
(c) An If
an institution cannot obtain consent of a donor in a record by reason of the
donor’s death, disability, unavailability, or impossibility of identification,
the institution may apply to the [appropriate court] for release or
modification of a restriction imposed by a gift instrument on the
use or investment of an institutional fund. The institution shall notify the [Attorney
General], who must be given an opportunity to be heard. If the court finds that
the restriction is [obsolete, inappropriate or impracticable] [unlawful,
impracticable, impossible to achieve, or wasteful,] the court may release or
modify the restriction, in whole or in part.,
in
a manner consistent with the charitable purpose expressed in the gift
instrument.
(d) This section does
not limit the application of the doctrine of cy pres, except that in applying
the doctrine of cy pres, the [appropriate court] may apply cy pres if a
restriction becomes unlawful, impracticable, impossible to achieve, or
wasteful.
(e) This section does
not limit the application of the doctrine of equitable deviation.
(df)
If an institution determines that a restriction imposed by a gift instrument on
the use or investment of an institutional fund is unlawful, impracticable,
impossible to achieve, or wasteful, the institution, after notification to the
[Attorney General], may release the restriction or modify it, in whole or part,
if:
(1) the institutional fund
subject to the restriction has a total value of less than [$25,000]; and
(2) more than [20] years have
elapsed since the fund was established.
(g) If a
restriction is released or modified, in whole or part, under this
subsection (f), the institution
must use the property in a manner the institution determines, in good faith, to
be consistent with the charitable purposes expressed in the gift instrument.
Preliminary Comment
Section 6 expands the
rules on releasing or modifying restrictions that are found in Section 7 of UMIFA
(1972). Subsection (b) restates the rule from UMIFA (1972) allowing the release
of a restriction with donor consent. Subsection (c) explains that if the consent of
the donor cannot be obtained because the donor is deceased or cannot be found,
the institution can seek court approval to release the restriction. Subsections (d) and (e) make clear that an
institution can always ask a court to apply cy pres or equitable deviation to
modify or release a restriction. Subsection (c b)
describes the application of court ordered cy pres but does not require notice
to the donor as was required in UMIFA (1972). Subsection (f), a
new provision, permits an institution to apply cy-pres on its own for small
funds that have existed for a substantial period of time, after giving notice
to the state attorney general.
Subsection (a)
permits the release of a restriction if the donor consents. A release with
donor consent cannot change the charitable beneficiary of the fund. Although
the donor has the power to consent to a release of a restriction, this section
does not create a power in the donor that will cause a federal tax problem for
the donor. The gift to the institution is a completed gift for tax purposes,
the property cannot be diverted from the charitable beneficiary, and the donor
cannot redirect the property to another use by the charity. The donor has no retained interest in the
fund.
Subsection (c)
restates the rule in UMIFA (1972) that indicates that if a donor is dead or
disabled, or cannot be found, then an institution can apply to a court for the
release of a restriction. [A
court can approve a release under subsection (b) even if the restriction does
not fall within the circumstances required for the application of cy pres.] The institution must give notice to the state
attorney general, who represents the interests of the public in ensuring that
the donor’s charitable wishes as expressed in the gift instrument are followed.
Subsection (d) states
that the doctrine of cy pres will continue to apply to institutions, but
updates the circumstances under which cy pres will apply by adopting the rule
set forth in UTC § 413. Under subsection
(d) a court may use cy pres to modify or release a restriction that has become
unlawful, impracticable, impossible to achieve, or wasteful. A restriction that
may have made sense when a donor made a gift, may no longer be appropriate due
to unanticipated changes. Under the
doctrine of cy pres the institution to can
apply for modification of the restriction, in keeping with the original intent
of the donor. The institution must give
notice to the state attorney general, who represents the
interests of the public in ensuring that the donor’s charitable wishes as
expressed in the gift instrument are followed.
In
determining the appropriate modification, the court will consider what the
donor would likely have preferred if the donor had been aware of the
unanticipated circumstances.
Subsection
(e) clarifies that the doctrine of equitable deviation applies to institutions. Under the doctrine of equitable deviation a
court can modify an administrative restriction under which an institution
manages or invests a fund. A court can
order equitable deviation if unanticipated circumstances have caused a
restriction to impede rather than facilitate the donor’s intent. Equitable deviation can be used to modify an
administrative restriction but not a purpose restriction. See
UTC §§ 412, 413; Restatement (Second) of Trusts § 167.
The Drafting Committee
considered requiring notification of the donor in a cy pres application but
concluded that such a requirement would make cy pres impracticable in
situations involving multiple donors. Good practice dictates notifying known
donors of any change considered by the institution. The Drafting Committee
concluded that an institution’s concern for donor relations would serve as
sufficient incentive for following that practice. The interest of donors who
cannot be contacted will be protected by the attorney general, the court, and
the standard itself. An institution will be able to use cy pres only if there
is a significant problem with complying with the restriction and only with the
supervision of the attorney general and the court.
Subsection (df)
permits an institution to release or modify a restriction using a cy pres
approach but without court approval if the amount of the institutional fund
involved is small and if the institutional fund has been in existence for more
than 20 years. The Drafting Committee determined that under some circumstances
a restriction may no longer make sense but the cost of a judicial cy pres
proceeding will be too great to warrant a change in the restriction. The
Committee discussed at length the parameters for allowing an institution to
apply cy pres itself, without court supervision. The Committee drafted
subsection (df) to
balance the needs of an institution to operate efficiently for its charitable
purposes and the need to protect donors’ wishes. The subsection assumes that an
institutional fund with a value of $25,000 or less is sufficiently small that
the cost of a judicial proceeding will be out of proportion with the need to
change the restriction. The Committee included a requirement that the
institutional fund be in existence at least 20 years because it seemed
reasonable to require additional safeguards for donors’ intent for some period
of time after the creation of the institutional fund. The 20 year period begins
to run from the date of inception of the fund and not from the date of each
gift to the fund. The amount and the number of years have been placed in
brackets to signal to enacting jurisdictions that they may wish to designate a
higher or lower figure.
Subsection (e d)
provides that, as As under
judicial cy pres, an institution acting under subsection (df)
must change the restriction in a manner that is in keeping with the intent of
the donor and the purpose of the fund. For example, if the value of a fund is
too small to justify the cost of administration of the fund as a separate fund,
the term “wasteful” would allow the institution to combine the fund with
another fund with similar purposes. If a fund had been created for nursing
scholarships and the institution closed its nursing school, the institution
might appropriately decide to use the fund for other scholarships at the
institution. In using the authority granted under subsection (df),
the institution must make a good faith determination of which alternative use
for the fund reasonably approximates the original intent of the donor. The
institution cannot divert the fund to an entirely different use. For example,
the fund for nursing scholarships could not be used to build a football
stadium.
The Drafting
Committee decided not to require an institution
acting under subsection (f) to give notice to the donors who had contributed to
the fund. Subsection (f) can only be
used for an old and small fund. For such
a fund, locating multiple donors may be prohibitively expensive, and notice by
publication is not likely to be effective in providing actual notice to the
donors. Good practice dictates notifying
known donors of any change considered by the institution. The Drafting Committee
concluded that an institution’s concern for donor relations would serve as a
sufficient incentive for following that practice when donors can be
located. In other circumstances, the
attorney general can protect the interests of the donors and the public.
SECTION 7. REVIEWING COMPLIANCE. Compliance with this
[act] is determined in light of the facts and circumstances existing at the
time a decision is made or action is taken, and not by hindsight.
SECTION 8. APPLICATION TO EXISTING INSTITUTIONAL FUNDS. This
[act] applies to institutional funds existing on or established after the
effective date of this [act]. As applied to institutional funds existing on its
effective date, this [act] governs only decisions made or actions taken after
that date.
SECTION 9. 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 of
that act (15 U.S.C. Section 7001(a)) or authorize electronic delivery of any of
the notices described in Section 103 of that act (15 U.S.C. Section 7003(b)).
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
states that enact it.
SECTION 11. EFFECTIVE DATE. This [act] takes effect .
. . .
SECTION 12. REPEAL. The following acts and parts of
acts are repealed:
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.