Senate Bill No. 244
(By Senators Jenkins, Caruth, Minard, Stollings, Sypolt, Wells,
Foster, Guills and Plymale)
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[Introduced January 17, 2008; referred to the Committee on
Finance.]
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A BILL to amend and reenact §44-6A-1, §44-6A-2, §44-6A-3, §44-6A-4,
§44-6A-5, §44-6A-6, §44-6A-7 and §44-6A-8 of the Code of West
Virginia, 1931, as amended; and to amend said code by adding
thereto two new sections, designated §44-6A-9 and §44-6A-10,
all relating to funds held for charitable purposes by
nonprofit charitable institutions; repealing the Uniform
Management of Institutional Funds Act (UMIFA); creating the
Uniform Prudent Management of Institutional Funds Act
(UPMIFA); standards of conduct in managing and investing
institutional funds; appropriation of institutional funds for
expenditures or accumulation; criteria for expenditure or
accumulation of institutional funds; delegation to an external
agent for the purpose of managing and investing of
institutional funds; modifying or releasing donor restrictions
on management, investment or purpose of funds; reviewing compliance; application to existing institutional funds;
relation to the federal Electronic Signatures in Global and
National Commerce Act; and uniformity in the application and
construction of the act.
Be it enacted by the Legislature of West Virginia:
That
§44-6A-1, §44-6A-2, §44-6A-3, §44-6A-4, §44-6A-5,
§44-6A-6, §44-6A-7 and §44-6A-8
of the Code of West Virginia, 1931,
as amended, be amended and reenacted;
and that said code be amended
by adding thereto two new sections, designated §44-6A-9 and
§44-6A-10, all to read as follows:
ARTICLE 6A. UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT.
§44-6A-1. Short title.
This article shall be known as the "Uniform Management of
Institutional Funds Act."
This article may be cited as the "Uniform
Prudent Management of Institutional Funds Act."
§44-6A-2. Definitions.
The following words or phrases as used in this article shall
have the meanings ascribed to them in this section, unless the
context of this article clearly indicates otherwise:
(a) "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;
(b) "Gift instrument" means a will, deed, trust agreement,
grant, conveyance, agreement, memorandum, writing or other governing document (including the terms of any institutional
solicitations from which an institutional fund resulted) that was
executed or in effect before or after the effective date of this
article under which property is transferred to, or held by or on
behalf of, an institution as an institutional fund;
(c) "Governing board" means the body responsible for the
management of an institution or of an institutional fund;
(d) "Historic dollar value" means the aggregate fair value in
dollars of: (i) An endowment fund at the time it became an
endowment fund; (ii) each subsequent donation to the fund at the
time it is made; and (iii) 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;
(e) "Institution" means an incorporated or unincorporated
organization organized and operated exclusively for educational,
religious, charitable or other eleemosynary purpose, a governmental
organization to the extent that it holds funds exclusively for any
of these purposes, or a community foundation or community trust;
(f) "Institutional fund" means a fund held by an institution
for its exclusive use, benefit or purposes, but does not include
(i) A fund held for an institution by a trustee that is not an
institution, unless the fund is held exclusively for the benefit of
either a community foundation or community trust by a bank, a trust company or another fiduciary that is a trustee of the community
foundation or community trust; or (ii) 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;
(g) "Community foundation" or community trust" means an
institution that has been established to attract contributions of
a capital or endowment nature for the benefit of a particular
community or area whose contributions are often received and
maintained in the form of separate trusts or funds which are
subject to varying degrees of control by the governing body of the
community foundation or community trust and which the governing
body in good faith believes meets the requirements of the
regulations issued by the internal revenue service, United States
department of treasury, presently codified as 26 CFR
1.170A-9(e)(10) and (11), to qualify as a "publicly supported"
organization and to be treated as a "single entity" rather than as
an aggregation of separate funds.
In this article:
(1) "Charitable purpose" means the relief of poverty, the
advancement of education or religion, the promotion of health, the
promotion of a governmental purpose, or any other purpose the
achievement of which is beneficial to the community.
(2) "Endowment fund" means an institutional fund or part thereof that, under the terms of a gift instrument, is not wholly
expendable by the institution on a current basis. The term does not
include assets that an institution designates 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 or on behalf of 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 governmental subdivision, agency, or
instrumentality, to the extent that it holds funds exclusively for
a charitable purpose;
(C) A trust that had both charitable and noncharitable
interests, after all noncharitable interests have terminated; and
(D) A community foundation or community trust.
(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, unless the fund is held exclusively for the benefit of
either a community foundation or community trust by a bank, a trust
company or other similar fiduciary; 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 investment.
(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.
(9) "Community foundation" or "community trust" means an
institution that has been established to attract contributions for
the benefit of a particular community or area whose contributions
are often received and maintained in the form of separate trusts or
funds which are subject to varying degrees of control by the
governing body of the community foundation or community trust and
which the governing body in good faith believes meets the
requirements of the regulations issued by the Internal Revenue
Service, United States Department of Treasury, presently codified
as 26 CFR 1.170A-9(e)(10) and (11), to qualify as a "publicly supported" organization and to be treated as a "single entity"
rather than as an aggregation of separate funds.
§44-6A-3. Standard of conduct in managing and investing
institutional fund.
(a) 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 six of this article. 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.
(b) Subsection (a) of this section 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 the
effective date of this article.
(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 other than this article, 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, must 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 must be made not in isolation but rather 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 other than this
article, an institution may invest in any kind of property or type
of investment consistent with 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 carry out 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, and distribution requirements of the
institution as necessary to meet other circumstances of the
institution and the requirements of this article.
(6) A person that 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
skills or that expertise in managing and investing institutional
funds.
§44-6A-4. Appropriation for expenditure or accumulation of
endowment fund; rules of construction.
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:
(a) 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;
(b) Retain property contributed by a donor to an institutional
fund for as long as the governing board deems advisable;
(c) Include all or any part of an institutional fund in any
pooled or common fund maintained by the institution; and
(d) 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.
(a) Subject to the intent of a donor expressed in the gift
instrument, an institution may appropriate for expenditure or
accumulate so much of an endowment fund as the institution
determines is prudent for the uses, benefits, purposes, and
duration for which the endowment fund is established. This section
does not limit the authority of the institution to expend funds as
permitted under other law, the terms of the gift instrument, or the
charter of the institution. Unless stated otherwise in the gift
instrument, the assets in an endowment fund are donor-restricted
assets (regardless of their treatment for accounting purposes) 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), 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 words of
similar import:
(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).
§44-6A-5. Delegation of management and investment functions.
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.
(a) Subject to any specific limitation set forth in a gift
instrument or in law other than this article, 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) 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 of this state other than this article.
§44-6A-6. Release or modification of restrictions on management,
investment, or purpose.
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.
Without limiting the options otherwise available to an
institution under applicable law, a restriction on the management,
investment, purpose or other provision of a gift to an
institutional fund may be released or modified in any one or more
of the following ways:
(1) If the donor consents 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.
(2) The court, upon application of an institution, may modify
a restriction contained in a gift instrument regarding the
management or investment of an institutional fund if the
restriction has become impracticable or wasteful, if it 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 institution shall notify the Attorney General of the application, and the
Attorney General must be given an opportunity to be heard. To the
extent practicable, any modification must be made in accordance
with the donor's probable intention.
(3) 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 of the application, and the Attorney General must be given
an opportunity to be heard.
(4) 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, sixty days after
notification to the Attorney General, may release or modify the
restriction, in whole or in part, if:
(A) The institutional fund subject to the restriction has a
total value of less than twenty-five thousand dollars;
(B) More than twenty years have elapsed since the fund was
established; and
(C) The institution uses the property in a manner consistent with the charitable purposes expressed in the gift instrument.
(5) If the terms of a gift instrument, either specifically or
by being subject to the charter of the institution, confer a power
on the institution to release or modify a restriction on the
management or investment of an institutional fund or the particular
charitable purpose or restriction on the use of the institutional
fund, the institution shall have the power to so modify or
terminate that restriction and the other provisions of this section
shall not apply to that release or modification. A release or
modification under this subsection may not allow a fund to be used
for a purpose other than a charitable purpose of the institution.
§44-6A-7. Reviewing compliance.
(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 circuit court of the county in which the
institution is located 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.
Compliance with this article 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.
§44-6A-8. Application to existing institutional funds.
This article shall be so applied and construed as to
effectuate its general purpose to make uniform the law with respect
to the subject of this act among those states which enact it.
This article applies to institutional funds existing on or
established after the effective date of this article. As applied
to institutional funds existing on the effective date of this
article, this article governs only decisions made or actions taken
on or after that date.
§44-6A-9. Relation to electronic signatures in Global and National
Commerce Act.
This article 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).
§44-6A-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.
NOTE: This bill repeals the Uniform Management of
Institutional Funds Act (UMIFA) and replaces it with the Uniform
Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA is
an update of the UMIFA which dates back to 1972. UPMIFA applies to
funds held for charitable purposes by nonprofit, charitable
institutions. The three principal issues addressed are scope of
coverage, investment obligations and expenditure of funds.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
§44-6A-9 and §44-6A-10 are new; therefore, strike-throughs and
underscoring have been omitted.
This bill was recommended for passage by the Comm'n on
Interstate Cooperation.