N.Y. Not-for-Profit Corporation Law § 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.