2013 New York Consolidated Laws
NPC - Not-For-Profit Corporation
Article 5-A - (550 - 558) PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT
553 - Appropriation for expenditure or accumulation of endowment fund; rules of construction.

 
  § 553. Appropriation  for expenditure or accumulation of endowment fund;
  rules of construction.
    (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.