New UPMIFA Sets Rules For Management of Charitable Funds

Act expands prudent investment standards, changes authority to spend portions of endowment

The National Conference of Commissioners on Uniform State Laws (“NCCUSL”) has approved some major revisions to the Uniform Management of institutional Funds Act (See Ready Reference Page: “UMIFA Sets Rules for Charitable Endowments.”) to adopt more modern standards for prudent investing and to allow more flexibility in spending endowment funds.

UMIFA was originally approved in 1972 and was considered highly successful in providing standards for charities to use in managing their investments and spending from endowments. It has been adopted, with some variations, in 48 states.

The new Act is the result of four years of work and debate by a national drafting committee and incorporates modern portfolio theory from the Uniform Prudent Investor Act and the Uniform Principal and Income Act to permit “more efficient management of funds for charitable purposes,” NCCUSL says. To differentiate the new act from UMIFA, it has been named the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”).

This Ready Reference Page summarizes the important provisions of the Act.

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Can’t Get No Satisfaction?

Revised Uniform Commercial Code clarifies some of the rules

Many businesses, including nonprofit businesses, face the dilemma associated with receiving or sending a check marked “In Full Satisfaction” in the midst of a disagreement with a vendor. The situation usually starts out with a dispute between a buyer and a seller of goods that ends up with the buyer sending the seller a check for less than the entire amount that the seller claims is due. The check or the accompanying letter ordinarily includes language to the effect that deposit of the check constitutes full satisfaction of the disputed amount. Cash the check and forever hold your peace.

The seller typically has not agreed to the proposed compromise but is reluctant to return the money in hand. The seller wants to deposit the check and still be able to claim the balance due. Is the seller stuck with the compromise if it deposits the check?

Nonprofits Must Deal With Religiously Diverse Workplace

Title VII requires reasonable accommodation that does not impose undue hardship on business

In his inaugural address, President Barack Obama stated that “…[w]e know that our patchwork heritage is a strength, not a weakness.  We are a nation of Christians and Muslims, Jews and Hindus – and nonbelievers.” 

It is this patchwork of different faiths, beliefs and non-beliefs that the Equal Employment Opportunity Commission (“EEOC”) calls America’s “rich tapestry of religious beliefs and practices.”  It is, however, this very tapestry of differences that has seeded conflict and increased litigation about religious discrimination in the workplace.

IRS Expands Availability of Flip Unitrusts

Final regulations permit switch to fixed percentage payout in certain situations outside the control of the trustee, and give one-time option for reformation

Unitrusts are among of the most flexible tools available to the planned giving officer. The final regulations permitting a "flip" from an income only payout to a fixed percentage payout in the case of sale of unmarketable assets are a significant advantage for both donors and charities. They should be studied carefully to see if they can be used with preexisting trusts.

Using a CRUT for Stock Options Can Be a Strategy That Sells Itself

Planning testamentary disposition of non-qualified deferred compensation can provide a virtually no risk technique for younger donors

Donors who hold non-qualified stock options or other forms of non-qualified deferred compensation should consider an absolutely no risk planned giving technique that could result in both a substantial gift to charity and more income for a surviving spouse.

Be Careful Handling Gifts with Strings Attached

Miscalculations can create both legal and public relations problems if development officers fail to find the right balance for gifts with restrictions

It is not necessarily easy to strike the right balance in accepting gifts with strings attached. If there are restrictions on any gift, be sure that both the donor and the charity fully understand what they are and that both can live with the limitations. You will be more likely to avoid both legal and public relations problems.

IRS Proposes Regulations for Travel Tours

Key to taxability of income is the amount of time participants spend on actual instruction and education

Travel tours have been one of the primary points of contention between small business and charities in the battle over unrelated business income. The IRS and Congress have regularly looked for abuses. Unless a tour program can contribute very significantly to your mission, it may not be worth the hassle to set one up and claim that it is not subject to unrelated business income tax.

Corporations Have Special Rules on Contributions

Many in-kind contributions may be deducted as ordinary business expenses; certain gifts of inventory qualify for enhanced deduction above cost basis.

Charitable fundraisers who understand the legal issues affecting potential donors are often better able to suggest gifts that work well for both the donor and the charity. Since corporations operate under different rules than individuals, it is important to understand the differences.

 

Articles of Incorporation Establish Basic Form of Nonprofit Corporations

State laws and IRS require certain provisions; including additional terms is primarily a matter of style

Articles of Incorporation, sometimes called a Certificate of Incorporation or Articles of Organization, are the fundamental governing document of a nonprofit corporation. They are filed with the appropriate state office to create the corporation.

The Articles normally include only the most basic provisions to meet the requirements of state law and the requirements established by the Internal Revenue Service to qualify for tax-exempt status, particularly the charitable exemption under Section 501(c)(3). The bylaws of the corporation usually contain significantly more provisions for ordinary governance of the corporation.

The Articles of Incorporation have primacy in the hierarchy of governing documents. Provisions of the Articles control over contrary provisions in the bylaws, while the bylaws control over corporate resolutions.

Articles do not have precise contours and the choice to include more than the minimally required provisions is largely a matter of the drafter’s style. In general, we avoid adding provisions to the Articles that are not absolutely required when they can be covered just as well in the bylaws.

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Spitzer Challenges Grasso’ Salary as “Objectively Unreasonable”And Obtained by Incomplete, Inaccurate, and Misleading Process

Head of NYSE compensation committee is also charged with breach of fiduciary duty for failing to advise Board on entire package

As the IRS begins to inquire gingerly about nonprofit salaries in excess of $1 million a year, it is informative to look at the complaint New York Attorney General Eliot Spitzer has filed to challenge the $187.5 million pay package awarded to former New York Stock Exchange Chairman and CEO Richard Grasso. (People v. Grasso, Supreme Court of New York in New York County, filed 5/24/04.)