(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. Unless stated otherwise in the 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, all of the following factors:

(1) The duration and preservation of the endowment fund.

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Terms Used In California Probate Code 18504

  • Appropriation: The provision of funds, through an annual appropriations act or a permanent law, for federal agencies to make payments out of the Treasury for specified purposes. The formal federal spending process consists of two sequential steps: authorization
  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • Donor: The person who makes a gift.
  • 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. See California Probate Code 18502
  • Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
  • Gift: A voluntary transfer or conveyance of property without consideration, or for less than full and adequate consideration based on fair market value.
  • 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. See California Probate Code 18502
  • Institution: means any of the following:

    California Probate Code 18502

  • Instrument: means a will, a document establishing or modifying a trust, a deed, or any other writing that designates a beneficiary or makes a donative transfer of property. See California Probate Code 45
  • 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. See California Probate Code 18502
  • State: includes any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession subject to the legislative authority of the United States. See California Probate Code 74

(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.

(7) The investment policy of the institution.

(b) To limit the authority to appropriate for expenditure or accumulate under subdivision (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 have both of the following effects:

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

(2) To not otherwise limit the authority to appropriate for expenditure or accumulate under subdivision (a).

(d) The appropriation for expenditure in any year of an amount greater than 7 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 is 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 the endowment fund has been in existence. This subdivision does not do any of the following:

(1) Apply to an appropriation for expenditure permitted under law other than this part or by the gift instrument.

(2) Apply to a private or public postsecondary educational institution, or to a campus foundation established by and operated under the auspices of such an educational institution.

(3) Create a presumption of prudence for an appropriation for expenditure of an amount less than or equal to 7 percent of the fair market value of the endowment fund.

(Repealed and added by Stats. 2008, Ch. 715, Sec. 4. Effective January 1, 2009.)