N.Y. Estates, Powers & Trusts Law § 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 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.

(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 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.

(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.

(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.

(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.

(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, 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.

(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.

(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.

(d) (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.

(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 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;

(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,

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.

(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

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;

(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

(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.

(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.