Termination of Ancient Endowments
Posted on Feb 09, 2012
One of the consequences of a prolonged economic downturn is a decrease in the size of institutional endowments, just at the time when reliance on those funds may increase in order to offset a simultaneous reduction in other (e.g., contribution) income. Because stock market performance does not directly coincide with economic health, particularly in a localized context, endowment funds may return to health before those other income sources. In either event, institutional fund managers are often pressed to review the constituent funds of an “endowment” for accessible cash.
This post will not cover all of the issues relating to the management of institutional funds. Suffice it to say that you are not doing your beloved charity any favors if you leave it restricted funds in your estate plan (though doubtless such gifts will be gladly accepted over no gift at all). The first place to look for guidance on this subject is the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The title of the Act is a mouthful, but its content is relatively short and straightforward. Those who sit on boards or committees for charitable institutions (i.e., schools and churches) should be aware of the provisions of 14 V.S.A. § 3416, which states:
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 $50,000;
(2) more than 20 years have elapsed since the fund was established; and
(3) the institution uses the property in a manner consistent with the charitable purposes expressed in the gift instrument.
Stated more simply, UPMIFA allows an institution to clear its books of those ancient, quirky, and no longer useful restricted funds (here’s looking at you, “Hitching Post Maintenance Fund”). In some contexts, $50,000 may not be a lot of money, but for many Vermont institutions, particularly churches, this provision mercifully allows the consolidation of funds that may have become little more than an accounting hassle, while also unlocking those funds for current needs. It may not be possible to allocate such funds to general operating expenses, but it may be possible to use them for similar but less restrictive purposes such as property maintenance or general student financial aid, as the case may be.
Note that if a fund is valued at $50,000 or more, it is still possible to achieve a modification, but a court proceeding will be required in the event that the donor is no longer available to consent.