N.Y. Not-for-Profit Corporation Law 553 – Appropriation for expenditure or accumulation of endowment fund; rules of construction
§ 553. Appropriation for expenditure or accumulation of endowment fund; rules of construction.
Terms Used In N.Y. Not-for-Profit Corporation Law 553
- 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.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Donor: means the person who grants or transfers property to an institution pursuant to a gift instrument, or a person designated in the applicable gift instrument to act in the place of the donor, but does not otherwise include the person's executors, heirs, successors, assigns, transferees, or distributees. See N.Y. Not-for-Profit Corporation Law 551
- 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 N.Y. Not-for-Profit Corporation Law 551
- 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 N.Y. Not-for-Profit Corporation Law 551
- Institution: means : (1) a person, other than an individual, organized and operated exclusively for charitable purposes; (2) a trust that had both charitable and noncharitable interests, after all noncharitable interests have terminated; or (3) any corporation described in subparagraph five of paragraph (a) of section 102 (Definitions). See N.Y. Not-for-Profit Corporation Law 551
- Notice: means information given by an institution as required by this article. See N.Y. Not-for-Profit Corporation Law 551
- Person: means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, or any other legal entity. See N.Y. Not-for-Profit Corporation Law 551
- 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. See N.Y. Not-for-Profit Corporation Law 551
(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, 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;
(7) where appropriate and circumstances would otherwise warrant, alternatives to expenditure of the endowment fund, giving due consideration to the effect that such alternatives may have on the institution; and
(8) the investment policy of the institution.
For each determination to appropriate for expenditure, the institution shall keep a contemporaneous record describing the consideration that was given by the governing board to each of the factors enumerated in this paragraph.
(b) To limit the authority to appropriate for expenditure or accumulate under paragraph (a) of this section, a gift instrument must specifically state the limitation. Terms in a gift instrument setting forth a specific spending level, rate, or amount, or explicitly modifying or overriding the provisions of paragraph (a) of this section, will limit the authority of the institution to appropriate for expenditure or accumulate under paragraph (a) of this section.
(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 paragraph (a) of this section.
(d) A rebuttable presumption of imprudence shall apply to gift instruments executed upon or after the effective date of this article as follows: 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 five 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 five years, the fair market value of the endowment fund must be calculated for the period the endowment fund has been in existence. This subsection does not:
(1) apply to an appropriation for expenditure permitted under law other than the chapter of the laws of 2010 that enacted this article 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.
(e)(1) With respect to a gift instrument executed by the donor before the effective date of this article an institution must provide ninety days notice to the donor, if the donor is then available, before applying paragraph (a) of this section for the first time, during which time the donor may clarify or amend the gift instrument to prohibit the application of paragraph (a) of this section. Such notice shall include a form for use by the donor, which shall contain language substantially as follows: Attention, Donor: Please check Box #1 or #2 below and return to the address shown above. ( ) #1 The institution may spend as much of my gift as may be prudent. ( ) #2 The institution may not spend below the original dollar value of
my gift.
If you check Box #1 above, the institution may spend as much of
your endowment gift (including all or part of the original
value of your gift) as may be prudent under the criteria set
forth in Article 5-A of the Not-for-Profit Corporation Law (The
Prudent Management of Institutional Funds Act).
If you check Box #2 above, the institution may not spend below
the original dollar value of your endowment gift but may spend
the income and the appreciation over the original dollar value
if it is prudent to do so. The criteria for the expenditure of
endowment funds set forth in Article 5-A of the Not-for-Profit
Corporation Law (The Prudent Management of Institutional Funds
Act) will not apply to your gift.
If the donor does not respond within ninety days from the date notice was given, paragraphs (a), (b), and (c) of this section shall be applied.
(2) This paragraph shall not apply if: (A) the gift instrument permits appropriation for expenditure from the endowment fund without regard for the fund's historic dollar value; (B) the gift instrument limits the institution's authority to appropriate for expenditure in accordance with paragraph (b) of this section; or (C) the gift consists of funds received as a result of an institutional solicitation without a separate statement by the donor expressing a restriction on the use of funds.
(f) When an institution acts pursuant to paragraph (a) or (e) of this section, it shall keep a record of such action.