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BILL AS INTRODUCED 2007-2008

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S.161

Introduced by Senator Illuzzi of Essex-Orleans District

Referred to Committee on

Date:

Subject:  Decedent’s estates and fiduciary relations; uniform prudent management of institutional funds act   

Statement of purpose:  This bill proposes to replace the uniform management of institutional funds act with the uniform prudent management of institutional funds act.  Subject to the intent of a donor expressed in a gift instrument, the bill requires an institution managing and investing an institutional fund to consider the charitable purposes of the institution and the purposes of the institutional fund.  Each person responsible for managing and investing an institutional fund is required to do so in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.

AN ACT RELATING TO THE UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT

It is hereby enacted by the General Assembly of the State of Vermont:


Sec. 1.  14 V.S.A. chapter 119 is amended to read: 

CHAPTER 119.  UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT

§ 3401.  DEFINITIONS

For purposes of this chapter:

(1)  “Institution” means an incorporated or unincorporated organization organized and operated exclusively for educational, religious, charitable, or other eleemosynary purposes, or a governmental organization to the extent that it holds funds exclusively for any of these purposes.

(2)  “Institutional fund” means a fund held by an institution for its exclusive use, benefit or purposes, but does not include:

(A)  a fund held for an institution by a trustee that is not an institution, or

(B)  a fund in which a beneficiary that is not an institution has an interest, other than possible rights that could arise upon violation or failure of the purposes of the fund;

(3)  “Endowment fund” means an institutional fund, or any part thereof, not wholly expendable by the institution on a current basis under the terms of the applicable gift instrument;

(4)  “Governing board” means the body responsible for the management of an institution or of an institutional fund;

(5)  “Historic dollar value” means the aggregate fair value in dollars of

(A)  an endowment fund at the time it became an endowment fund,

(B)  each subsequent donation to the fund at time it is made, and

(C)  each accumulation made pursuant to a direction in the applicable gift instrument at the time the accumulation is added to the fund.

The determination of historic dollar value made in good faith by the institution is conclusive.

(6)  “Gift instrument” means a will, deed, grant, conveyance, agreement, memorandum, writing, or other governing document, including the terms of any institutional solicitations from which an institutional fund resulted, under which property is transferred to or held by an institution as an institutional fund.

§ 3402.  APPROPRIATION OF APPRECIATION

The governing board may appropriate for expenditure for the uses and purposes for which an endowment fund is established so much of the net appreciation, realized and unrealized, in the fair value of the assets of an endowment fund over the historic dollar value of the fund as is prudent under the standard established by section 3406 of this title.  This section does not limit the authority of the governing board to expend funds as permitted under other law, the terms of the applicable gift instrument, or the charter of the institution.

§ 3403.  RULE OF CONSTRUCTION

Section 3402 of this title does not apply if the applicable gift instrument indicates the donor’s intention that net appreciation shall not be expended.  A restriction upon the expenditure of net appreciation may not be implied from a designation of a gift as an endowment, or from a direction or authorization in the applicable gift instrument to use only “income,” “interest,” “dividends,” or “rents, issues or profits,” or “to preserve the principal intact,” or a direction which contains other words of similar import.  This rule of construction applies to gift instruments executed or in effect before or after July 1, 1973.

§ 3404.  INVESTMENT AUTHORITY

In addition to an investment otherwise authorized by law or by the applicable gift instrument, and without restriction to investments a fiduciary may make, the governing board, subject to any specific limitations set forth in the applicable gift instrument or in the applicable law other than law relating to investments by a fiduciary, may:

(1)  invest and reinvest an institutional fund in any real or personal property deemed advisable by the governing board, whether or not it produces a current return, including mortgages, stocks, bonds, debentures, and other securities of profit or nonprofit corporations, shares in or obligations of associations, partnerships, or individuals, and obligations of any government or subdivision or instrumentality thereof;

(2)  retain property contributed by a donor to an institutional fund for as long as the governing board deems advisable;

(3)  include all or any part of an institutional fund in any pooled or common fund maintained by the institution; and

(4)  invest all or any part of an institutional fund in any other pooled or common fund available for investment, including shares or interests in regulated investment companies, mutual funds, common trust funds, investment partnerships, real estate investment trusts, or similar organizations in which funds are commingled and investment determinations are made by persons other than the governing board.

§ 3405.  DELEGATION OF INVESTMENT MANAGEMENT

Except as otherwise provided by the applicable gift instrument or by applicable law relating to governmental institutions or funds, the governing board may:

(1)  delegate to its committees, officers or employees of the institution or the fund, or agents, including investment counsel, the authority to act in place of the board in investment and reinvestment of institutional funds;

(2)  contract with independent investment advisors, investment counsel or managers, banks, or trust companies, so to act; and

(3)  authorize the payment of compensation for investment advisory or management services.

§ 3406.  STANDARD OF CONDUCT

In the administration of the powers to appropriate appreciation, to make and retain investments, and to delegate investment management of institutional funds, members of a governing board shall exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of the action or decision.  In so doing they shall consider long and short term needs of the institution in carrying out its educational, religious, charitable, or other eleemosynary purposes, its present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions.

§ 3407.  RELEASE OF RESTRICTIONS ON USE OR INVESTMENT

(a)  With the written consent of the donor, the governing board may release, in whole or in part, a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund.

(b)  If written consent of the donor cannot be obtained by reason of his death, disability, unavailability, or impossibility of identification, the governing board may apply in the name of the institution to the superior court for release of a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund.  The attorney general shall be notified of the application and shall be given an opportunity to be heard.  If the court finds that the restriction is obsolete, inappropriate, or impracticable, it may by order release the restriction in whole or in part.  A release under this subsection may not change an endowment fund to a fund that is not an endowment fund.

(c)  A release under this section may not allow a fund to be used for purposes other than the educational, religious, charitable, or other eleemosynary purposes of the institution affected.

(d)  This section does not limit the application of the doctrine of cy pres.

§ 3411.  DEFINITIONS

As used in this chapter:

(1)  “Charitable purpose” means the relief of poverty, the advancement of education or religion, the promotion of health, the promotion of governmental purposes, and any other 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 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, including an institutional solicitation, under which property is granted to, transferred to, or held by an institution as an institutional fund.


(4)  “Institution” means:

(A)  a person, other than an individual, organized and operated exclusively for charitable purposes;

(B)  a government or a governmental subdivision, agency, or instrumentality to the extent that it holds funds exclusively for a charitable purpose; or

(C)  a trust that had both charitable and noncharitable interests, after all noncharitable interests have terminated.

(5)  “Institutional fund” means a fund held by an institution exclusively for charitable purposes.  The term does not include:

(A)  program-related assets;

(B)  a fund held for an institution by a trustee that is not an institution; or

(C)  a fund in which a beneficiary that is not an institution has an interest, other than an interest 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, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.

(7)  “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 the production of income.

(8)  “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.

§ 3412.  STANDARD OF CONDUCT IN MANAGING AND INVESTING

              INSTITUTIONAL FUND

(a)  Subject to the intent of a donor expressed in a gift instrument, an institution, in managing and investing an institutional fund, shall consider the charitable purposes of the institution and the purposes of the institutional fund.

(b)  In addition to complying with the duty of loyalty imposed by law, each person responsible for managing and investing an institutional fund shall manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.

(c)  In managing and investing an institutional fund, an institution:

(1)  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; and

(2)  shall make a reasonable effort to verify facts relevant to the management and investment of the fund.

(d)  An institution may pool two or more institutional funds for purposes of management and investment.

(e)  Except as otherwise provided by a gift instrument, the following rules apply:

(1)  In managing and investing an institutional fund, the following factors, if relevant, shall be considered:

(A)  general economic conditions;

(B)  the possible effect of inflation or deflation;

(C)  the expected tax consequences, if any, of investment decisions or strategies;

(D)  the role that each investment or course of action plays within the overall investment portfolio of the fund;

(E)  the expected total return from income and the appreciation of investments;

(F)  other resources of the institution;

(G)  the needs of the institution and the fund to make distributions and to preserve capital; and

(H)  an asset’s special relationship or special value, if any, to the charitable purposes of the institution.

(2)  Management and investment decisions about an individual asset shall 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.

(3)  Except as otherwise provided by law, an institution may invest in any kind of property or type of investment consistent with the standards of this section.

(4)  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 diversification.

(5)  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 chapter.

(6)  A person who has special skills or expertise, or is selected in reliance upon the person’s representation that the person has special skills or expertise, has a duty to use those special skills or that expertise in managing and investing institutional funds.


§ 3413.  APPROPRIATION FOR EXPENDITURE OR ACCUMULATION

              OF ENDOWMENT FUND; RULES OF CONSTRUCTION

(a)  Subject to subsection (d) of this section and to the intent of a donor expressed in a gift instrument, an institution may appropriate for expenditure 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.  Unless stated otherwise in a gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution.  In making a determination to appropriate or accumulate, 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)  To limit the authority to appropriate for expenditure or accumulate under subsection (a) of this section, a gift instrument must specifically state the limitation.

(c)  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:

(1)  create an endowment fund of permanent duration unless other language in the gift instrument limits the duration or purpose of the fund; and

(2)  do not otherwise limit the authority to appropriate for expenditure or accumulate under subsection (a) of this section.

(d)  The appropriation for expenditure in any year of an amount greater than seven percent of the fair market value of an endowment fund, calculated on the basis of market values determined at least quarterly and averaged over a period of not less than three years immediately preceding the year in which the appropriation for expenditure was made, creates a rebuttable presumption of imprudence.  For an endowment fund in existence for fewer than three years, the fair market value of the endowment fund shall be calculated for the period of time the endowment fund has been in existence.  This subsection shall not:

(1)  apply to an appropriation for an expenditure otherwise permitted by law or by the gift instrument; or

(2)  create a presumption of prudence for an appropriation for expenditure of an amount less than or equal to seven percent of the fair market value of the endowment fund.

§ 3414.  DELEGATION OF MANAGEMENT AND INVESTMENT

              FUNCTIONS

(a)  Subject to any specific limitation set forth by law or in a gift instrument, an institution may delegate to an external agent the management and investment of an institutional fund to the extent 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 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) of this section 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 or related to the delegation or the performance of the delegated function.

(e)  An institution may delegate management and investment functions to its committees, officers, or employees as authorized by law.

§ 3415.  RELEASE OR MODIFICATION OF RESTRICTIONS ON

              MANAGEMENT, INVESTMENT, OR PURPOSE

(a)  With the donor’s consent in a record, an institution may release or modify, in whole or in part, a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund.  A release or modification may not allow a fund to be used for a purpose other than a charitable purpose of the institution.

(b)  If a restriction contained in a gift instrument on the management or investment of an institutional fund becomes impracticable or wasteful or impairs the management or investment of the fund, or if because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund, the court, upon application of the institution, may modify the restriction.  The institution shall notify the attorney general, who shall be given an opportunity to be heard.  To the extent practicable, any modification shall be made in accordance with the donor’s probable intention.

(c)  If a particular charitable purpose or a restriction contained in a gift instrument on the use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court, upon application of an institution, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument.  The institution shall notify the attorney general, who shall be given an opportunity to be heard.

(d)  If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, 60 days after notification to the attorney general, may release or modify the restriction in whole or in part if:

(1)  the institutional fund subject to the restriction has a total value of less than $25,000.00;

(2)  more than 20 years have elapsed since the fund was established; and

(3)  the institution uses the property in a manner the institution reasonably determines to be consistent with the charitable purposes expressed in the gift instrument.

§ 3416.  REVIEWING COMPLIANCE

Compliance with this chapter 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.

§ 3417.  APPLICATION TO EXISTING INSTITUTIONAL FUNDS

This chapter applies to institutional funds existing on or established after July 1, 2007.  As applied to institutional funds existing on July 1, 2007, this chapter governs only decisions made or actions taken after that date.

§ 3418.  RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND

              NATIONAL COMMERCE ACT

This chapter modifies, limits, and supersedes the 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)).

§ 3419.  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.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us