By: Matthew Getty
One of the consequences of the 2008 recession was a decrease in the size of institutional endowments, just at the time when reliance on those funds may have increased in order to offset a simultaneous reduction in contribution income. The Dow Jones Industrial Average has tripled since the depths of that market downturn, but institutions continue to be pressed by change, particularly in demographics. In these circumstances, institutional fund managers are often pressed to review the constituent funds of an “endowment” for accessible cash.
This post will not cover all of the issues relating to the management of institutional funds, but I would like to put in a plug here for making your charitable gifts unrestricted. Although I am sure that a restricted gift will gladly be accepted over no gift at all, onerous restrictions can simply increase administrative costs and complicate life for the charity when circumstances change. When that happens, the charity may need to look at its options under the law to seek more flexibility for the use of your gift.
The first place to look for guidance on this subject is the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The title of the Act is a mouthful, but its content is relatively short and straightforward. Those who sit on boards or committees for charitable institutions (i.e. schools and churches) should be aware of the provisions of 14 V.S.A. § 3416, which states in part:
d) 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, 60 days after notification to the attorney general, may release or modify the restriction, in whole or in part, if:
(1) the institutional fund subject to the restriction has a total value of less
(2) more than 20 years have elapsed since the fund was established; and
(3) the institution uses the property in a manner consistent with the
charitable purposes expressed in the gift instrument.
Stated more simply, UPMIFA allows an institution to clear its books of those ancient, quirky, and no longer useful restricted funds (that’s you, “Hitching Post Maintenance Fund”). In some contexts, $50,000 may not be a lot of money, but for many Vermont institutions, particularly churches, this provision mercifully allows the consolidation of funds that may have become little more than an accounting hassle, while also unlocking those funds for current needs. It may not be possible to allocate such funds to general operating expenses, but it may be possible to use them for similar but less restrictive purposes such as property maintenance or general student financial aid, as the case may be.
Note that if a fund is valued at $50,000 or more, it is still possible to achieve a modification, but a court proceeding will be required in the event that the donor is no longer available to consent. The attorney general must still be notified and given an opportunity to be heard.