1 UPMIFA AFP Presentation MariBen Ramsey Vice President and General Counsel Austin Community Foundation April 8, 2010
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
UPMIFAAFP PresentationMariBen RamseyVice President and General CounselAustin Community FoundationApril 8, 2010
2
UPMIFA: Uniform Prudent Management of InstitutionalFunds Act
Effective in Texas September 1, 2007
3
WHO DOES IT APPLY TO?
» Non-profit corporations (including private foundations)
» Trusts with charitable purposes where a charity is a trustee
» Governmental subdivisions or agencies
» Unincorporated associations
» Any other “person” organized and operated exclusively for charitable purposes
4
DOES IT APPLY TO ALL MONEY OF A NON-PROFIT?
» Only endowment funds
NO…
5
WHAT IS AN ENDOWMENT?
» It is a fund that under the terms of the “gift instrument” has a portion that cannot be spent immediately.
»It requires a restriction from a third-party donor.
» It is a fund that under the terms of the “gift instrument” has a portion that cannot be spent immediately.
»It requires a restriction from a third-party donor.
» This does not include a “board-designated endowment”.
6
WHAT IS A GIFT INSTRUMENT?
»It is a record or records, including a solicitation by a charity, which provides instructions, intentions or information regarding the use of funds received from a donor.
• Gift agreement• Pledge card• Letter• Email communications• Solicitation letter to which a donor responded• It could also include a voicemail
»It is a record or records, including a solicitation by a charity, which provides instructions, intentions or information regarding the use of funds received from a donor.
• Gift agreement• Pledge card• Letter• Email communications• Solicitation letter to which a donor responded• It could also include a voicemail
7
• UPMIFA provides the standard of conduct
for managing and investment endowments.
• All of the rules of UPMIFA are subject to the donor’s intent expressed in a gift instrument.
• A donor’s intent RULES!
8
UPMIFA
»Consider the charitable purposes of organization»Consider the charitable purposes of the specific endowment»Invest the fund in good faith»Invest with the care an ordinarily prudent person in a like position
would exercise under similar circumstances»Incur only costs that are appropriate and reasonable in relation to
the assets, charitable purposes of the organization and skills available to the organization »Make a reasonable effort to verify facts relevant to the
management and investment of the funds
- Fourth le
Standards for Managing and Investing an Endowment
9
MANAGING AND INVESTING AN ENDOWMENT
1. The following factors must be considered (if relevant):
Rules that Apply (UNLESS Gift Instrument Provides Otherwise)
• General economic conditions
• Possible effect of inflation or deflation
• Role each investment plays in the overall portfolio of the fund
• Expected total return from income and the appreciation of investments
• Other resources of the organization
• Needs of the organization and the fund to make distributions and to preserve capital
• Assets special relationship or special value, if any to the charitable purposes of the organization
• General economic conditions
• Possible effect of inflation or deflation
• Role each investment plays in the overall portfolio of the fund
• Expected total return from income and the appreciation of investments
• Other resources of the organization
• Needs of the organization and the fund to make distributions and to preserve capital
• Assets special relationship or special value, if any to the charitable purposes of the organization
10
MANAGING AND INVESTING AN ENDOWMENT
2. Decisions about an individual asset must be made not in isolation but as part of the fund’s overall investment strategy.
3. Can invest in any kind of property or type of investment (unless another law prohibits it)
4. Mandates a diversified portfolio approach for investments, absent special circumstances
5. Timely disposition of received property
6. A person with special skills or expertise or selected in reliance on that person’s representations that he/she had such skills or expertise, has a duty to use those skills and expertise
Rules that Apply (continued)
11
DISTRIBUTIONS FROM AN ENDOWMENT
UPMIFA makes a tremendous change from the previous law that required that the “Historic Gift Value” of an endowment could never be distributed. The Historic Gift Value was the amount of the original and any subsequent contributions made to the endowment.
UPMIFA eliminated the idea of the Historic Gift Value and replaced it with a new standard for distributions – prudence.
UPMIFA makes a tremendous change from the previous law that required that the “Historic Gift Value” of an endowment could never be distributed. The Historic Gift Value was the amount of the original and any subsequent contributions made to the endowment.
UPMIFA eliminated the idea of the Historic Gift Value and replaced it with a new standard for distributions – prudence.
12
DISTRIBUTIONS FROM AN ENDOWMENT
• Duration and preservation of the endowment fund
• Purposes of the organization and the endowment
• General economic conditions
• Possible effect of inflation or deflation
• Expected total return from income and the appreciation of investments
• Other resources of the organization
• Organization’s investment policy
• Duration and preservation of the endowment fund
• Purposes of the organization and the endowment
• General economic conditions
• Possible effect of inflation or deflation
• Expected total return from income and the appreciation of investments
• Other resources of the organization
• Organization’s investment policy
UPMIFA provides that an organization can distribute from or accumulate to an endowment fund as much as the organization determines is prudent taking into consideration the following factors:
13
DISTRIBUTIONS FROM AN ENDOWMENT
• For an endowment of $1 million or more, distribution in one year of more than 7% of the FMV of the fund, calculated on the basis of values determined at least quarterly and averaged over a period of not less than 3 years creates a rebuttable presumption of imprudence.
This does NOT create a PRESUMPTION that distribution of 7% or less from such a fund in a year IS prudent.
• For an endowment of less than $1 million, distribution is one year of more that 5% of the FMV of the fund, calculated on the basis of values determined a least quarterly and averaged over a period of not less than 3 years creates a rebuttable presumption of imprudence.
This does NOT create a PRESUMPTION that distribution of 7% or less from such a fund in a year IS prudent.
• If funds are pooled for investment purposes, the collective value of the funds is used for the rebuttable presumption.
• For an endowment of $1 million or more, distribution in one year of more than 7% of the FMV of the fund, calculated on the basis of values determined at least quarterly and averaged over a period of not less than 3 years creates a rebuttable presumption of imprudence.
This does NOT create a PRESUMPTION that distribution of 7% or less from such a fund in a year IS prudent.
• For an endowment of less than $1 million, distribution is one year of more that 5% of the FMV of the fund, calculated on the basis of values determined a least quarterly and averaged over a period of not less than 3 years creates a rebuttable presumption of imprudence.
This does NOT create a PRESUMPTION that distribution of 7% or less from such a fund in a year IS prudent.
• If funds are pooled for investment purposes, the collective value of the funds is used for the rebuttable presumption.
14
»To limit the authority to distribute from or accumulate to the endowment, a donor must specifically state what that limitation is in the gift instrument.
Examples: 10% of income each year shall be added to the principal of the fund Only “true income” may be used for distributions No money shall be distributed until the value of the fund equals $1 million
DISTRIBUTIONS FROM AN ENDOWMENT
15
CAN A DONOR’S RESTRICTION BE REMOVED OR CHANGED?
YES! UPMIFA allows a donor to change or remove a restriction from an endowment if the donor consents in a “record”.
If the donor is deceased or can’t be found or won’t consent,you can apply to the court to have a restriction changed if it becomes impracticable or wasteful; or if unforeseen circumstances keep the fund from being able to serve its purpose without some modification.
If the donor is deceased or can’t be found or won’t consent,you can apply to the court to have a restriction changed if it becomes impracticable or wasteful; or if unforeseen circumstances keep the fund from being able to serve its purpose without some modification.
16
CAN A DONOR’S RESTRICTION BE REMOVED OR CHANGED?
If the fund is less than $25,000 and created more than 20 years ago, an organization can modify a restriction if it is unlawful, impracticable, impossible to achieve, or wasteful. Inorder to make a change, the Texas Attorney General must be notified and provided with the gift instrument and a statement of the facts to show that the restriction is unlawful, impracticable, impossible to achieve, or wasteful. The restriction can than be changed 60 days after the Attorney General received notice and has not objected.
If the fund is less than $25,000 and created more than 20 years ago, an organization can modify a restriction if it is unlawful, impracticable, impossible to achieve, or wasteful. Inorder to make a change, the Texas Attorney General must be notified and provided with the gift instrument and a statement of the facts to show that the restriction is unlawful, impracticable, impossible to achieve, or wasteful. The restriction can than be changed 60 days after the Attorney General received notice and has not objected.
17
ISSUES FOR DEVELOPMENT PROFESSIONALS CREATION OF AN ENDOWMENT
» Endowment» Permanently restrict» Use only income» Use only interest and dividends» Preserve the principal» Don’t use or invade the corpus
Language in a gift instrument that creates an endowment
includes words such as:
18
» Create an endowment» Help ensure the permanent future of this program» A permanent legacy» Give to the XYZ Endowment
Words in your marketing or campaign materials that may
create an endowment:
ISSUES FOR DEVELOPMENT PROFESSIONALS CREATION OF AN ENDOWMENT
Related Documents
