ULC

Why States Should Adopt UMIFA

Governing boards of charitable (eleemosynary) institutions have long sought to make more effective use of endowment and other investment funds. They and their counsel have wrestled with questions as to permissible investments, delegation of investment authority, and use of the total return concept in investing endowment funds. Until the Uniform Management of Institutional Funds Act was approved in 1972, there was no statutory law to guide governing boards of charitable institutions.

There are a number of reasons why every state should adopt the Uniform Management of Institutional Funds Act.

Use of Appreciation

The Uniform Act authorizes expenditure of net appreciation subject to a standard of business care and prudence. The standard of care is that of a reasonable and prudent director of a non-profit corporation - similar to that of a director of a business corporation.

The Uniform Act specifically provides that if a donor indicates that he wishes to limit expenditures to ordinary yield, his wishes will be respected.

The Act is constitutionally sound in its application to gifts received prior to enactment. Further, the Act does no more than declare the existing law in that it interprets the presumed intent of the donor in the absence of a clear statement of the donor's intent.

Specific Investment Authority

Investment managers of endowment funds need a clear statement of their investment authority. The Act so provides.

Authority to Delegate

In the absence of clear law relating to the powers of governing boards of charitable institutions, some boards have been advised that they are subject to the non delegation strictures of professional private trustees. The board of a charitable institution should be able to delegate day-to­day investment management to committees or employees and to purchase investment advisory or management services. The Act so provides.

Standard of Care

Fear of liability may have a debilitating effect upon members of a governing board, who are usually uncompensated public-spirited citizens. These managers of non-profit corporations, guiding a unique and perhaps very large institution, should be subject to a standard of care and prudence comparable to the directors of a for-profit corporation.
Release of Restrictions

A donor may place restrictions on his largesse which the donee institution must honor, but if the restrictions on use or investment become outmoded or wasteful or unworkable, there should be a way of modifying or adjusting them. The Act authorizes the governing board to obtain the acquiescence of the donor to a release of restrictions or in the absence of the donor, to petition the appropriate court for relief.