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

§ 553. Appropriation for expenditure or accumulation of endowment fund;\nrules of construction.\n (a) Subject to the intent of a donor expressed in the gift instrument,\nan institution may appropriate for expenditure or accumulate so much of\nan endowment fund as the institution determines is prudent for the uses,\nbenefits, purposes, and duration for which the endowment fund is\nestablished. Unless stated otherwise in the gift instrument, the assets\nin an endowment fund are donor-restricted assets until appropriated for\nexpenditure by the institution. In making a determination to appropriate\nor accumulate, the institution shall act in good faith, with the care\nthat an ordinarily prudent person in a like position would exercise\nunder similar circumstances, and shall consider, if relevant, the\nfollowing factors:\n (1) the duration and preservation of the endowment fund;\n (2) the purposes of the institution and the endowment fund;\n (3) general economic conditions;\n (4) the possible effect of inflation or deflation;\n (5) the expected total return from income and the appreciation of\ninvestments;\n (6) other resources of the institution;\n (7) where appropriate and circumstances would otherwise warrant,\nalternatives to expenditure of the endowment fund, giving due\nconsideration to the effect that such alternatives may have on the\ninstitution; and\n (8) the investment policy of the institution.\n For each determination to appropriate for expenditure, the institution\nshall keep a contemporaneous record describing the consideration that\nwas given by the governing board to each of the factors enumerated in\nthis paragraph.\n (b) To limit the authority to appropriate for expenditure or\naccumulate under paragraph (a) of this section, a gift instrument must\nspecifically state the limitation. Terms in a gift instrument setting\nforth a specific spending level, rate, or amount, or explicitly\nmodifying or overriding the provisions of paragraph (a) of this section,\nwill limit the authority of the institution to appropriate for\nexpenditure or accumulate under paragraph (a) of this section.\n (c) Terms in a gift instrument designating a gift as an endowment, or\na direction or authorization in the gift instrument to use only\n"income," "interest," "dividends," or "rents, issues, or profits," or\n"to preserve the principal intact," or words of similar import:\n (1) create an endowment fund of permanent duration unless other\nlanguage in the gift instrument limits the duration or purpose of the\nfund; and\n (2) do not otherwise limit the authority to appropriate for\nexpenditure or accumulate under paragraph (a) of this section.\n (d) A rebuttable presumption of imprudence shall apply to gift\ninstruments executed upon or after the effective date of this article as\nfollows: The appropriation for expenditure in any year of an amount\ngreater than seven percent of the fair market value of an endowment\nfund, calculated on the basis of market values determined at least\nquarterly and averaged over a period of not less than five years\nimmediately preceding the year in which the appropriation for\nexpenditure is made, creates a rebuttable presumption of imprudence. For\nan endowment fund in existence for fewer than five years, the fair\nmarket value of the endowment fund must be calculated for the period the\nendowment fund has been in existence. This subsection does not:\n (1) apply to an appropriation for expenditure permitted under law\nother than the chapter of the laws of 2010 that enacted this article or\nby the gift instrument; or\n (2) create a presumption of prudence for an appropriation for\nexpenditure of an amount less than or equal to seven percent of the fair\nmarket value of the endowment fund.\n (e)(1) With respect to a gift instrument executed by the donor before\nthe effective date of this article an institution must provide ninety\ndays notice to the donor, if the donor is then available, before\napplying paragraph (a) of this section for the first time, during which\ntime the donor may clarify or amend the gift instrument to prohibit the\napplication of paragraph (a) of this section. Such notice shall include\na form for use by the donor, which shall contain language substantially\nas follows:\nAttention, Donor:\nPlease check Box #1 or #2 below and return to the address shown above.\n( ) #1 The institution may spend as much of my gift as may be prudent.\n( ) #2 The institution may not spend below the original dollar value of\n my gift.\n If you check Box #1 above, the institution may spend as much of\n your endowment gift (including all or part of the original\n value of your gift) as may be prudent under the criteria set\n forth in Article 5-A of the Not-for-Profit Corporation Law (The\n Prudent Management of Institutional Funds Act).\n If you check Box #2 above, the institution may not spend below\n the original dollar value of your endowment gift but may spend\n the income and the appreciation over the original dollar value\n if it is prudent to do so. The criteria for the expenditure of\n endowment funds set forth in Article 5-A of the Not-for-Profit\n Corporation Law (The Prudent Management of Institutional Funds\n Act) will not apply to your gift.\n If the donor does not respond within ninety days from the date notice\nwas given, paragraphs (a), (b), and (c) of this section shall be\napplied.\n (2) This paragraph shall not apply if: (A) the gift instrument permits\nappropriation for expenditure from the endowment fund without regard for\nthe fund's historic dollar value; (B) the gift instrument limits the\ninstitution's authority to appropriate for expenditure in accordance\nwith paragraph (b) of this section; or (C) the gift consists of funds\nreceived as a result of an institutional solicitation without a separate\nstatement by the donor expressing a restriction on the use of funds.\n (f) When an institution acts pursuant to paragraph (a) or (e) of this\nsection, it shall keep a record of such action.\n