1

Fiduciary Duties of Charitable Organizations in Accepting and

Managing Charitable GiftsPhilanthropy Advisory Council

Ball State University FoundationJune 27, 2013

Laura Hansen Dean, J.D.ldean@austin.rr.com

2

Board policies should include a Gift Acceptance Policy that covers:

1) Organization’s ethical standards and practices2) Interest in gifts that further the mission of the

organization3) Commitment to the best interests of the donor

Gift Acceptance

3

4) Commitment to donor confidentiality and privacy – public records laws will have an impact

5) Describes types of assets that can be given

6) Describes the process and factors considered when non-cash gifts are offered

4

7) Types of gift vehicles available and when the organization will serve as fiduciary (charitable gift annuities, charitable remainder & lead trusts, pooled income funds) for the vehicles

8) Types of gift restrictions that are acceptable

9) Minimum gift amount needed to establish differing types of endowment funds

5

A high percentage of gifts to publicly-supported charitable organizations include a designation or restriction as to how the recipient organization can use the gift.

Donor restrictions should be indicated in some written form for outright restricted gifts.

Restricted Gifts

6

Donor restrictions for permanent or endowment gifts should be memorialized in a Memorandum of Understanding or Endowment Agreement kept on file with the organization.

Best practice is to include how the gift will be invested, how spendable amount is determined, future use of the gift if minimum endowment amounts increase, and authorization for the organization to alter the restrictions in the future if impossibility or impracticability occurs or after a state time period.

7

Restrictions on use of donor-restricted gifts must be adhered to unless:1) the living donor or donors desire or agree to change the restrictions2) a written document gives the governing board the right to vary the use of the gift3) the restrictions are time limited and then the gift is released for general purposes4) cy pres – the organization petitions a court for permission to vary the use of the gift

8

5) a state law, like UPMIFA – Uniform Prudent Investment of Institutional Funds Act – Indiana Code 30-2-12 – allows the organization to modify or release the restrictions in institutional funds held for investment (IC 30-2-12-13) including by providing notice to the Attorney General of the change if:a) value of the fund is less than $25,000, b) the fund was established more than 20 years earlier, andc) the new use is consistent with the original charitable purposes of the gift.

9

UPMIFA – IC 30-2-12 – applies to endowment funds in existence after June 30, 2007, and to actions taken or decisions made after June 30, 2007 on funds in existence on or before 6-30-2007.

Applies to decisions about spending or accumulating all or part of endowment funds.Modifying or releasing donor restrictions.Duties of persons managing such funds.Delegation of management or investment of such funds and duties of agents.

Endowment Funds

10

Governing board should decide if they are willing to issue CGAs and in what states based on state-by-state registration requirements and costs.

Understand the impact of issuing CGAs on the organization’s financial statements – temporarily restricted assets offset by short-term and long-term liabilities. The long-term liability amount is adjusted annually as part of the audit.

Charitable Gift Annuities

11

Recognize that CGAs are a contractual and general obligation of the charity, backed by the original gift plus the unrestricted assets of the charity.

Understand the assumptions used by the American Council on Gift Annuities in recommending maximum payout rates at varying ages of issuance for immediate and deferred CGAs. Decide whether to use the recommended rates or lower rates.

12

Regularly and carefully review the investment policy statement for the gift annuity investment pool and adjust asset allocation classes and percentages as warranted.

Determine if management fees will be taken during the administration of CGAs and/or a percentage of the amount left at the death of the last annuitant is charged.

Determine if donors can restrict the future use of the amount left at the death of the last annuitant.

13

The governing board should determine if the organization has the legal capacity to serve as Trustee under state law, and then determine if, and under what conditions they are willing to serve as Trustee of CRTs and CLTs.

Size of initial gift? Type of assets contributed? Length of trust term? Irrevocable beneficiary of how much of the remainder or annual distribution (usually 50% or more)? Restrictions on use of the remainder or annual distribution?

Serving as Trustee of Charitable Remainder and Lead Trusts

14

Trustees of CRTs and CLTs 1) Should draft the document for execution or

require certain provisions if executed by the donor’s counsel and review the final document before execution

2) Understand the impact of the obligation to treat all beneficiaries fairly and the communication expectations of the Uniform Prudent Investor Act

3) Establish a policy regarding management fees and the donor’s ability to restrict the use of the gift.

15

3) avoid violating the prohibitions against self-dealing, jeopardizing investments, excess business holdings, and taxable expenditures

4) make timely distributions as described in the trust documents

5) file annual trust tax returns and state filings required of trustees

6) distribute the trust assets as provided for in the trust document without delay

16

The governing board should determine

1) if the organization has the legal capacity to serve as Trustee of revocable (non-charitable trusts) under state law2) if the organization has the expertise and systems in place to serve as Trustee3) possible liability exposure for serving as Trustee of revocable trusts and insurance coverage for acting in this capacity

Serving as Trustee of Revocable Trusts

17

The governing board should determine

1) if the organization has the legal capacity to serve as Executor under state law2) if the organization has the expertise and systems in place to serve as Executor3) possible liability exposure for serving as Executor and insurance coverage for acting in this capacity

Serving as Executor of Estates