Alert 3/17/2009 12:00:00 AM

Massachusetts to Consider the Uniform Prudent Management of Institutional Funds Act

A proposed bill to adopt the Uniform Prudent Management of Institutional Funds Act ("UPMIFA") has recently been filed in Massachusetts. If passed, UPMIFA would:

  • Adopt more explicit standards for the prudent management and investment of charitable funds. The standards would be consistent with modern portfolio theory for making diversified investments and considering risk and return.
  • Permit the delegation of the management and investment of charitable funds to external agents. The institution would be required to use reasonable care in selecting the agent, defining the scope of the delegation and reviewing the agent’s performance. The agent would owe a duty of reasonable care in managing and investing the charitable funds.
  • Make it easier to obtain release or modification of restrictions on charitable gifts. UPMIFA would clarify the courts’ ability to modify restrictions or the purpose of a fund, and institutions themselves would be able to modify restrictions on smaller and older funds upon notice to the Attorney General without court action.
  • Change the rules governing expenditure of endowment funds. The current rules for appropriation from an endowment provide that net appreciation of an endowment fund may be spent if prudent, but appreciation may not be spent if it would take the endowment fund below its original value (the "historic dollar value limitation"). Under current law expenditure of more than 7% of the value of an endowment fund in any year is presumed to be imprudent. UPMIFA would eliminate the historic dollar value limitation and would permit charities to spend the amount the charity deems prudent for the purposes and duration of a given endowment fund, taking into account several specific factors relating to the institution, the endowment fund and general economic conditions. The version of UPMIFA introduced in Massachusetts would retain the rebuttable presumption of imprudence for expenditure in one year of more than 7% of the value of the fund. Donors would be able to override the provisions of UPMIFA in the express provisions of a gift.