2016 New York Laws
EPT - Estates, Powers & Trusts
Article 8 - CHARITABLE TRUSTS
Part 1 - (8-1.1 - 8-1.9) RULES GOVERNING CHARITABLE TRUSTS
8-1.9 - Trust governance

8-1.9 Trust governance
(a) For purposes of this section:
(1) A "trust" means a trust created solely for charitable purposes, or
  a trust that continues solely for such purposes after all non-charitable
  interests have terminated.
(2)  "Charitable purpose" means any religious, charitable, educational
  or benevolent purpose.
* (3) "Key employee" means any person who is in a position to exercise
  substantial influence over the affairs of the trust, as referenced in 26
  U.S.C. section 4958(f)(1)(A) and further specified in 26 C.F.R.  section
  53.4958-3(c),  (d)  and (e), or succeeding provisions to the extent such
  provisions are applicable.
* NB Effective until May 27, 2017
* (3) "Key person" means any person other than a trustee,  whether  or
  not  an  employee,  who (i) has responsibilities, or exercises powers of
  influence over the trust as a whole  similar  to  the  responsibilities,
  powers,  or  influence of trustees and officers; (ii) manages the trust,
  or a segment of the trust that represents a substantial portion  of  the
  activities,  assets,  income or expenses of the trust; or (iii) alone or
  with others controls or determines a substantial portion of the  trust's
  capital expenditures or operating budget.
* NB Effective May 27, 2017
(4)  An  "affiliate"  of a trust means any entity controlled by, or in
  control of, such trust.
(5) "Relative" of an  individual  means  (i)  his  or  her  spouse  or
  domestic partner as defined in section twenty-nine hundred ninety-four-a
  of  the  public  health  law;  (ii)  his  or her ancestors, brothers and
  sisters (whether whole or half  blood),  children  (whether  natural  or
  adopted),  grandchildren,  great-grandchildren;  or  (iii) the spouse or
  domestic  partner  of  his   or   her   brothers,   sisters,   children,
  grandchildren, and great-grandchildren.
* (6)  "Related  party"  means  (i) any trustee or key employee of the
  trust or any affiliate of the trust or any other  person  who  exercises
  the powers of a trustee or key employee over the affairs of the trust or
  any  affiliate  of  the  trust;  (ii)  any  relative  of  any individual
  described in clause (i) of this subdivision; or (iii) an entity in which
  any individual described in clauses (i) and (ii) of this subdivision has
  a thirty-five percent or greater ownership or beneficial interest or, in
  the  case  of  a  partnership  or  professional  corporation,  a  direct
  ownership interest in excess of five percent.
* NB Effective until May 27, 2017
* (6) "Related party" means (i) any trustee or key person of the trust
  or  any  affiliate  of  the  trust;  (ii) any relative of any individual
  described in clause (i) of this subparagraph;  or  (iii)  an  entity  in
  which  any  individual  described  in  clauses  (i)  and  (ii)  of  this
  subparagraph  has  a  thirty-five  percent  or  greater   ownership   or
  beneficial  interest  or,  in  the case of a partnership or professional
  corporation, a direct ownership interest in excess of five percent.
* NB Effective May 27, 2017
* (7) "Independent trustee" means a trustee who: (i) is not,  and  has
  not  been  within  the  last three years, an employee of the trust or an
  affiliate of the trust, and does not have a relative who is, or has been
  within the last three years, a key employee of the trust or an affiliate
  of the trust; (ii) has not received, and does not have  a  relative  who
  has  received,  in  any  of  the  last three fiscal years, more than ten
  thousand dollars in direct compensation from the trust or  an  affiliate
  of  the  trust  (other than reimbursement for expenses or the payment of
  trustee commissions or reasonable compensation as permitted by  law  and

  the  governing  instrument);  (iii) is not a current employee of or does
  not have a substantial financial  interest  in,  and  does  not  have  a
  relative  who  is  a  current officer of or have a substantial financial
  interest  in, any entity that has made payments to, or received payments
  from, the trust or an affiliate of the trust for property or services in
  an amount which, in any of the last  three  fiscal  years,  exceeds  the
  lesser  of  twenty-five thousand dollars or two percent of such entity's
  consolidated gross revenues; or (iv) is not and does not have a relative
  who is a current owner, whether wholly or partially,  director,  officer
  or  employee  of  the  trust's  outside auditor or who has worked on the
  trust's audit at any time during the past three years. For  purposes  of
  this  subdivision,  "payment" does not include charitable contributions,
  dues or fees paid to the trust for services which the trust performs  as
  part of its nonprofit purposes.
* NB Effective until May 27, 2017
* (7)  "Independent  trustee" means a trustee who: (i) is not, and has
  not been within the last three years, an employee of  the  trust  or  an
  affiliate of the trust, and does not have a relative who is, or has been
  within  the  last three years, a key person of the trust or an affiliate
  of the trust; (ii) has not received, and does not have  a  relative  who
  has  received,  in  any  of  the  last three fiscal years, more than ten
  thousand dollars in direct compensation from the trust or  an  affiliate
  of  the  trust;  (iii)  is  not a current employee of or does not have a
  substantial financial interest in, and does not have a relative who is a
  current officer of or have a  substantial  financial  interest  in,  any
  entity  that has provided payments, property or services to, or received
  payments, property or services from, the trust or an  affiliate  of  the
  trust  if  the amount paid by the trust to the entity or received by the
  trust from the entity for such property or services, in any of the  last
  three  fiscal  years, exceeded the lesser of ten thousand dollars or two
  percent of such entity's consolidated  gross  revenue  if  the  entity's
  consolidated  gross revenue was less than five hundred thousand dollars;
  twenty-five thousand dollars if the entity's consolidated gross  revenue
  was  five  hundred  thousand  dollars  or more but less than ten million
  dollars; one hundred thousand dollars if the entity's consolidated gross
  revenue was ten million dollars or more; or (iv) is  not  and  does  not
  have  a  relative  who  is a current owner, whether wholly or partially,
  director, officer or employee of the trust's outside auditor or who  has
  worked on the trust's audit at any time during the past three years. For
  purposes  of  this  subparagraph,  the  terms:  "compensation"  does not
  include reimbursement for expenses or the payment of trustee commissions
  or reasonable  compensation  as  permitted  by  law  and  the  governing
  instrument;  and  "payment"  does  not include charitable contributions,
  dues or fees paid to the trust for services which the trust performs  as
  part  of  its nonprofit purposes, or payments made by the trust at fixed
  or non-negotiable rates or amounts for services received, provided  that
  such services by and to the trust are available to individual members of
  the  public  on  the same terms, and such services provided to the trust
  are not available from another source.
* NB Effective May 27, 2017
* (8) "Related party transaction" means any transaction, agreement  or
  any  other arrangement in which a related party has a financial interest
  and in which the trust or any affiliate of the trust is a participant.
* NB Effective until May 27, 2017
* (8) "Related party transaction" means any transaction, agreement  or
  any  other arrangement in which a related party has a financial interest
  and in which the trust or any affiliate of the trust is  a  participant,
  except  that  a transaction shall not be a related party transaction if:

  (i) the transaction or the related party's  financial  interest  in  the
  transaction is de minimis, (ii) the transaction would not customarily be
  reviewed  by  the  board,  or  boards  of  similar organizations, in the
  ordinary  course  of  business and is available to others on the same or
  similar terms, or (iii) the transaction constitutes a  benefit  provided
  to  a  related  party solely as a member of a class of the beneficiaries
  that the trust intends to benefit as part of the accomplishment  of  its
  mission  which benefit is available to all similarly situated members of
  the same class on the same terms.
* NB Effective May 27, 2017
(9)  "Independent  auditor"  means  any  certified  public  accountant
  performing  the audit of the financial statements of a trust required by
  subdivision one of section one hundred seventy-two-b  of  the  executive
  law.
(b)(1)  The trustees or a designated audit committee consisting of one
  or  more  independent  trustees  of  any  trust  required  to  file   an
  independent certified public accountant's audit report with the attorney
  general pursuant to subdivision one of section one hundred seventy-two-b
  of  the  executive  law  shall  oversee  the  accounting  and  financial
  reporting processes of the trust and the audit of the trust's  financial
  statements.  The  trustees  or designated audit committee shall annually
  retain or renew the retention of an independent auditor to  conduct  the
  audit  and, upon completion thereof, review the results of the audit and
  any related management letter with the independent auditor.
(2) The trustees or a designated audit committee consisting of one  or
  more  independent  trustees of any trust required to file an independent
  certified public accountant's audit report  with  the  attorney  general
  pursuant  to subdivision one of section one hundred seventy-two-b of the
  executive law and that in the prior fiscal year had or  in  the  current
  fiscal  year  reasonably expects to have annual revenue in excess of one
  million dollars  shall,  in  addition  to  those  duties  set  forth  in
  subparagraph one of this paragraph:
(A)  review with the independent auditor the scope and planning of the
  audit prior to the audit's commencement;
(B) upon  completion  of  the  audit,  review  and  discuss  with  the
  independent  auditor:  (i) any material risks and weaknesses in internal
  controls identified by the auditor; (ii) any restrictions on  the  scope
  of  the  auditor's  activities or access to requested information; (iii)
  any significant disagreements between the auditor  and  management;  and
  (iv)  the  adequacy  of  the  trust's accounting and financial reporting
  processes;
(C)  annually  consider  the  performance  and  independence  of   the
  independent auditor; and
(D)  if  the duties required by this section are performed by an audit
  committee, report on the committee's activities to the trustees.
* (3) The trustees or designated audit  committee  shall  oversee  the
  adoption,  implementation  of,  and  compliance  with  any  conflict  of
  interest policy or whistleblower policy adopted by  the  trust  if  this
  function  is  not  otherwise  performed  by  another committee comprised
  solely of independent trustees.
* NB Repealed May 27, 2017
(4) If a trust is under the control of another trust or a corporation,
  the trustees or designated audit committee of the controlling trust,  or
  the  board or designated audit committee of the board of the controlling
  corporation, may perform the duties required by this paragraph.
(5) Only independent trustees  may  participate  in  deliberations  or
  voting  relating  to  matters  set  forth in this section, provided that
  nothing in this paragraph shall prohibit the board or  designated  audit

  committee  from  requesting that a person with an interest in the matter
  present information as background or answer questions at a committee  or
  board  meeting  prior  to  the  commencement  of deliberations or voting
  relating thereto.
(c)* (1)  Notwithstanding any provision of the trust instrument to the
  contrary, no trust shall enter into any related party transaction unless
  the transaction is determined by the trustees to be fair, reasonable and
  in the trust's best interest at the  time  of  such  determination.  Any
  trustee,  officer or key employee who has an interest in a related party
  transaction shall  disclose  in  good  faith  to  the  trustees,  or  an
  authorized   committee  thereof,  the  material  facts  concerning  such
  interest.
* NB Effective until May 27, 2017
* (1) Notwithstanding any provision of the  trust  instrument  to  the
  contrary, no trust shall enter into any related party transaction unless
  the  transaction  is  determined  by  the  trustees,  or  an  authorized
  committee thereof, to be  fair,  reasonable  and  in  the  trust's  best
  interest  at the time of such determination. Any trustee, officer or key
  employee who has an  interest  in  a  related  party  transaction  shall
  disclose  in  good  faith  to  the  trustees, or an authorized committee
  thereof, the material facts concerning such interest.
* NB Effective May 27, 2017
(2) With respect to any related party transaction in which  a  related
  party  has  a  substantial  financial  interest,  the  trustees,  or  an
  authorized committee thereof, shall:
(A) Prior to  entering  into  the  transaction,  consider  alternative
  transactions to the extent available;
(B)  Approve  the  transaction by not less than a majority vote of the
  trustees or committee members present at the meeting; and
(C) Contemporaneously document in writing the basis for the  trustees'
  or  authorized  committee's  approval,  including  consideration  of any
  alternative transactions.
(3) The trust  instrument,  by-laws  or  any  policy  adopted  by  the
  trustees   may   contain   additional   restrictions  on  related  party
  transactions and additional procedures  necessary  for  the  review  and
  approval  of  such  transactions,  or  provide  that  any transaction in
  violation of such restrictions shall be void or voidable.
(4) The attorney general may  bring  an  action  to  enjoin,  void  or
  rescind   any  related  party  transaction  or  proposed  related  party
  transaction that violates any provision of this article or was otherwise
  not reasonable or in the best interests of the trust  at  the  time  the
  transaction  was  approved,  or  to seek restitution, and the removal of
  trustees or officers, or seek to require any person or entity to:
(A) Account for any profits made from such transaction, and  pay  them
  to the trust;
(B) Pay the trust the value of the use of any of its property or other
  assets used in such transaction;
(C)  Return  or replace any property or other assets lost to the trust
  as  a  result  of  such  transaction,  together  with  any   income   or
  appreciation lost to the trust by reason of such transaction, or account
  for  any  proceeds of sale of such property, and pay the proceeds to the
  trust together with interest at the legal rate; and
(D) Pay, in the case of willful and intentional conduct, an amount  up
  to double the amount of any benefit improperly obtained.
(5) The powers of the attorney general provided in this section are in
  addition  to  all  other powers the attorney general may have under this
  chapter or any other law.

(6) No related  party  may  participate  in  deliberations  or  voting
  relating  to  a  related  party  transaction  in  which he or she has an
  interest; provided that nothing  in  this  section  shall  prohibit  the
  trustees  or  designated  audit committee from requesting that a related
  party present information or answer questions concerning a related party
  transaction at a trustees or committee meeting prior to the commencement
  of deliberations or voting relating to the related party transaction.
* (7)  In  an  action  by any person or entity other than the attorney
  general, it shall be a defense to a claim of violation of any provisions
  of this paragraph that a transaction was fair,  reasonable  and  in  the
  trust's best interest at the time the trust approved the transaction.
* NB Effective May 27, 2017
* (8)  In  an action by the attorney general with respect to a related
  party transaction not approved in accordance with  subparagraph  one  or
  two  of  this  paragraph  at  the time it was entered into, whichever is
  applicable, it shall be a  defense  to  a  claim  of  violation  of  any
  provisions  of  this  paragraph  that  (i)  the  transaction  was  fair,
  reasonable and in the trust's  best  interest  at  the  time  the  trust
  approved  the  transaction  and (ii) prior to receipt of any request for
  information by the  attorney  general  regarding  the  transaction,  the
  trustees  have:  (A)  ratified  the transaction by finding in good faith
  that it was fair, reasonable and in the trust's  best  interest  at  the
  time  the  trustee  approved  the  transaction; and, with respect to any
  related party transaction involving  a  charitable  corporation  and  in
  which  a  related party has a substantial financial interest, considered
  alternative  transactions  to  the  extent  available,   approving   the
  transaction  by  not  less  than  a  majority  vote  of  the trustees or
  committee members present at the meeting; (B) documented in writing  the
  nature  of  the violation and the basis for the trustees' or committee's
  ratification of the transaction; and (C) put into  place  procedures  to
  ensure  that the trustee complies with subparagraphs one and two of this
  paragraph as to related party transactions in the future.
* NB Effective May 27, 2017
(d)* (1) Except as provided in subparagraph four  of  this  paragraph,
  every trust shall adopt a conflict of interest policy to ensure that its
  trustees,  officers  and  key  employees act in the best interest of the
  trust  and  its  beneficiaries  and   comply   with   applicable   legal
  requirements, including but not limited to the requirements set forth in
  this paragraph.
* NB Effective until May 27, 2017
* (1) Except as provided in subparagraph four of this paragraph, every
  trust  shall  adopt,  and  oversee the implementation of, and compliance
  with, a conflict  of  interest  policy  to  ensure  that  its  trustees,
  officers  and  key persons act in the best interest of the trust and its
  beneficiaries and comply with applicable legal  requirements,  including
  but not limited to the requirements set forth in this paragraph.
* NB Effective May 27, 2017
(2)  The  conflict of interest policy shall include, at a minimum, the
  following provisions:
(A) a definition of the circumstances that constitute  a  conflict  of
  interest;
* (B)  procedures  for  disclosing a conflict of interest to the audit
  committee or, if there is no audit committee, to the trustees;
* NB Effective until May 27, 2017
* (B) procedures for disclosing a conflict  of  interest  or  possible
  conflict  of interest to the trustees or to a committee of the trustees,
  and procedures for the trustees or  committee  to  determine  whether  a
  conflict exists;

* NB Effective May 27, 2017
(C) a requirement that the person with the conflict of interest not be
  present  at  or  participate  in  any deliberation or vote on the matter
  giving rise to such conflict, provided  that  nothing  in  this  section
  shall  prohibit  the  trustees  or  a committee from requesting that the
  person with the conflict of interest present information  as  background
  or  answer  questions  at  a  trustees or committee meeting prior to the
  commencement of deliberations or voting relating thereto;
(D) a prohibition against any attempt by the person with the  conflict
  to  influence  the  deliberation  or voting on the matter giving rise to
  such conflict;
(E) a requirement that the existence and resolution of the conflict be
  documented in the trust's records,  including  in  the  minutes  of  any
  meeting at which the conflict was discussed or voted upon; and
(F)  procedures  for  disclosing,  addressing, and documenting related
  party transactions in accordance with this paragraph.
(3) The conflict of interest policy shall  require  that  prior  to  a
  trustee's  initial  appointment,  and  annually thereafter, such trustee
  shall complete, sign and file with the records of the  trust  a  written
  statement  identifying  any  entity  of  which  he or she is an officer,
  director, trustee, member, owner (either  as  a  sole  proprietor  or  a
  partner),  or  employee and with which the trust has a relationship, and
  any transaction in which the trust is a participant  and  in  which  the
  trustee might have a conflicting interest. The policy shall require that
  each  trustee  annually  resubmit  such  written statement. The trustees
  shall provide a copy of all completed statements to  the  chair  of  the
  audit committee, if there is an audit committee.
(4)  A  trust  that  has  adopted and possesses a conflict of interest
  policy pursuant to federal, state or local laws  that  is  substantially
  consistent  with  the  provisions  of subparagraph two of this paragraph
  shall be deemed in compliance with provisions of this paragraph.
(5) Nothing in this paragraph shall be interpreted to require a  trust
  to adopt any specific conflict of interest policy not otherwise required
  by this paragraph or any other law or rule, or to supersede or limit any
  requirement  or  duty  governing  conflicts  of interest required by any
  other law or rule.
(e)* (1) Except as provided in subparagraph three of  this  paragraph,
  every  trust  that  has twenty or more employees and in the prior fiscal
  year had annual revenue in excess of one million dollars shall  adopt  a
  whistleblower  policy  to  protect  from  retaliation persons who report
  suspected improper conduct. Such policy shall provide that  no  officer,
  trustee,  employee or volunteer of a trust who in good faith reports any
  action or suspected action taken by or within the trust that is illegal,
  fraudulent or in violation of any adopted  policy  of  the  trust  shall
  suffer intimidation, harassment, discrimination or other retaliation or,
  in the case of employees, adverse employment consequence.
* NB Effective until May 27, 2017
* (1)  Except as provided in subparagraph three of this paragraph, the
  trustees of every trust that has twenty or more  employees  and  in  the
  prior  fiscal  year  had annual revenue in excess of one million dollars
  shall adopt, and oversee the implementation of, and compliance  with,  a
  whistleblower  policy  to  protect  from  retaliation persons who report
  suspected improper conduct. Such policy shall provide that  no  officer,
  trustee,  employee or volunteer of a trust who in good faith reports any
  action or suspected action taken by or within the trust that is illegal,
  fraudulent or in violation of any adopted  policy  of  the  trust  shall
  suffer intimidation, harassment, discrimination or other retaliation or,
  in the case of employees, adverse employment consequence.

* NB Effective May 27, 2017
(2) The whistleblower policy shall include the following provisions:
(A) Procedures for the reporting of violations or suspected violations
  of  laws  or  trust  policies,  including  procedures for preserving the
  confidentiality of reported information;
* (B) A requirement that a trustee, officer or employee of  the  trust
  be  designated  to administer, the whistleblower policy and to report to
  the audit committee or other committee of independent  trustees,  or  to
  the trustees; and
* NB Effective until May 27, 2017
* (B)  A  requirement that a trustee, officer or employee of the trust
  be designated to administer, the whistleblower policy and to  report  to
  the  trustees  or  an authorized committee thereof, except that trustees
  who are  employees  may  not  participate  in  any  board  or  committee
  deliberations  or voting relating to administration of the whistleblower
  policy;
* NB Effective May 27, 2017
* (C) A requirement that a copy of the policy be  distributed  to  all
  trustees,  officers,  employees and volunteers, with instructions on how
  to comply with the procedures set forth in the policy. For  purposes  of
  this  subdivision, posting the policy on the corporation's website or at
  the corporation's  offices  in  a  conspicuous  location  accessible  to
  employees  and volunteers are among the methods a corporation may use to
  satisfy the distribution requirement.
* NB Effective until May 27, 2017
* (C)  A  requirement  that  the  person  who  is  the  subject  of  a
  whistleblower  complaint  not  be  present at or participate in board or
  committee deliberation or vote on the matter relating to such complaint,
  provided that nothing in this subparagraph shall prohibit the  board  or
  committee  from  requesting  that  the  person  who  is  subject  to the
  complaint present information as background or  answer  questions  at  a
  committee or board meeting prior to the commencement of deliberations or
  voting relating thereto; and
* NB Effective May 27, 2017
* (D)  A  requirement  that a copy of the policy be distributed to all
  trustees, officers, employees and volunteers, with instructions  on  how
  to  comply  with the procedures set forth in the policy. For purposes of
  this subdivision, posting the policy on the corporation's website or  at
  the  corporation's  offices  in  a  conspicuous  location  accessible to
  employees and volunteers are among the methods a corporation may use  to
  satisfy the distribution requirement.
* NB Effective May 27, 2017
(3)  A  trust  that  has  adopted and possesses a whistleblower policy
  pursuant  to  federal,  state  or  local  laws  that  is   substantially
  consistent  with  the  provisions  of subparagraph two of this paragraph
  shall be deemed in compliance with the provisions of this paragraph.
(4) Nothing in this paragraph shall  be  interpreted  to  relieve  any
  trust   from   any  additional  requirements  in  relation  to  internal
  compliance, retaliation, or document retention required by any other law
  or rule.