Florida Senate - 2011 SB 952 By Senator Richter 37-00786A-11 2011952__ 1 A bill to be entitled 2 An act relating to uniform prudent management of 3 institutional funds; creating s. 617.2104, F.S.; 4 creating a short title; providing definitions; 5 providing requirements for the management of funds 6 held by an institution exclusively for charitable 7 purposes; providing standards of conduct in managing 8 and investing institutional funds; providing 9 requirements for appropriation for expenditure or 10 accumulation of an endowment fund by an institution; 11 authorizing an institution to delegate to an external 12 agent the management and investment of an 13 institutional fund; authorizing the release or 14 modification of a restriction on management, 15 investment, or purpose of an institutional fund; 16 providing for determination of compliance; providing 17 for application to existing or newly established 18 institutional funds; providing relationship to federal 19 law; providing requirements for uniformity of 20 application and construction of the act; repealing s. 21 1010.10, F.S., relating to the Florida Uniform 22 Management of Institutional Funds Act; providing an 23 effective date. 24 25 Be It Enacted by the Legislature of the State of Florida: 26 27 Section 1. Section 617.2104, Florida Statutes, is created 28 to read: 29 617.2104 Uniform Prudent Management of Institutional Funds 30 Act.— 31 (1) SHORT TITLE.—This section may be cited as the “Uniform 32 Prudent Management of Institutional Funds Act.” 33 (2) DEFINITIONS.—For purposes of this section: 34 (a) “Charitable purpose” means the relief of poverty, the 35 advancement of education or religion, the promotion of health, 36 the promotion of a governmental purpose, or any other purpose 37 the achievement of which is beneficial to the community. 38 (b) “Endowment fund” means an institutional fund or part 39 thereof that, under the terms of a gift instrument, is not 40 wholly expendable by the institution on a current basis. The 41 term does not include assets that an institution designates as 42 an endowment fund for its own use. 43 (c) “Gift instrument” means a record or records, including 44 an institutional solicitation, under which property is granted 45 to, transferred to, or held by an institution as an 46 institutional fund. 47 (d) “Institution” means: 48 1. A person, other than an individual, organized and 49 operated exclusively for charitable purposes; 50 2. A government or governmental subdivision, agency, or 51 instrumentality to the extent that it holds funds exclusively 52 for a charitable purpose; or 53 3. A trust that had both charitable and noncharitable 54 interests after all noncharitable interests have terminated. 55 (e) “Institutional fund” means a fund held by an 56 institution exclusively for charitable purposes. The term does 57 not include: 58 1. Program-related assets; 59 2. A fund held for an institution by a trustee that is not 60 an institution; or 61 3. A fund in which a beneficiary that is not an institution 62 has an interest, other than an interest that could arise upon 63 violation or failure of the purposes of the fund. 64 (f) “Person” means an individual, corporation, business 65 trust, estate, trust, partnership, limited liability company, 66 association, joint venture, public corporation, government or 67 governmental subdivision, agency, or instrumentality, or any 68 other legal or commercial entity. 69 (g) “Program-related asset” means an asset held by an 70 institution primarily to accomplish a charitable purpose of the 71 institution and not primarily for investment. 72 (h) “Record” means information that is inscribed on a 73 tangible medium or that is stored in an electronic or other 74 medium and is retrievable in perceivable form. 75 (3) STANDARD OF CONDUCT IN MANAGING AND INVESTING 76 INSTITUTIONAL FUND.— 77 (a) Subject to the intent of a donor expressed in a gift 78 instrument, an institution, in managing and investing an 79 institutional fund, shall consider the charitable purposes of 80 the institution and the purposes of the institutional fund. 81 (b) In addition to complying with the duty of loyalty 82 imposed by law other than this section, each person responsible 83 for managing and investing an institutional fund shall manage 84 and invest the fund in good faith and with the care an 85 ordinarily prudent person in a like position would exercise 86 under similar circumstances. 87 (c) In managing and investing an institutional fund, an 88 institution: 89 1. May incur only costs that are appropriate and reasonable 90 in relation to the assets, the purposes of the institution, and 91 the skills available to the institution. 92 2. Shall make a reasonable effort to verify facts relevant 93 to the management and investment of the fund. 94 (d) An institution may pool two or more institutional funds 95 for purposes of management and investment. 96 (e) Except as otherwise provided by a gift instrument, the 97 following rules apply: 98 1. In managing and investing an institutional fund, the 99 following factors, if relevant, must be considered: 100 a. General economic conditions. 101 b. The possible effect of inflation or deflation. 102 c. The expected tax consequences, if any, of investment 103 decisions or strategies. 104 d. The role that each investment or course of action plays 105 within the overall investment portfolio of the fund. 106 e. The expected total return from income and the 107 appreciation of investments. 108 f. Other resources of the institution. 109 g. The needs of the institution and the fund to make 110 distributions and to preserve capital. 111 h. An asset’s special relationship or special value, if 112 any, to the charitable purposes of the institution. 113 2. Management and investment decisions about an individual 114 asset must be made not in isolation but rather in the context of 115 the institutional fund’s portfolio of investments as a whole and 116 as a part of an overall investment strategy having risk and 117 return objectives reasonably suited to the fund and to the 118 institution. 119 3. Except as otherwise provided by law other than this 120 section, an institution may invest in any kind of property or 121 type of investment consistent with this section. 122 4. An institution shall diversify the investments of an 123 institutional fund unless the institution reasonably determines 124 that, because of special circumstances, the purposes of the fund 125 are better served without diversification. 126 5. Within a reasonable time after receiving property, an 127 institution shall make and carry out decisions concerning the 128 retention or disposition of the property or to rebalance a 129 portfolio in order to bring the institutional fund into 130 compliance with the purposes, terms, and distribution 131 requirements of the institution as necessary to meet other 132 circumstances of the institution and the requirements of this 133 section. 134 6. A person that has special skills or expertise, or is 135 selected in reliance upon the person’s representation that the 136 person has special skills or expertise, has a duty to use those 137 skills or that expertise in managing and investing institutional 138 funds. 139 (4) APPROPRIATION FOR EXPENDITURE OR ACCUMULATION OF 140 ENDOWMENT FUND; RULES OF CONSTRUCTION.— 141 (a) Subject to the intent of a donor expressed in the gift 142 instrument, an institution may appropriate for expenditure or 143 accumulate so much of an endowment fund as the institution 144 determines is prudent for the uses, benefits, purposes, and 145 duration for which the endowment fund is established. Unless 146 stated otherwise in the gift instrument, the assets in an 147 endowment fund are donor-restricted assets until appropriated 148 for expenditure by the institution. In making a determination to 149 appropriate or accumulate, the institution shall act in good 150 faith with the care that an ordinarily prudent person in a like 151 position would exercise under similar circumstances and shall 152 consider, if relevant, the following factors: 153 1. The duration and preservation of the endowment fund. 154 2. The purposes of the institution and the endowment fund. 155 3. General economic conditions. 156 4. The possible effect of inflation or deflation. 157 5. The expected total return from income and the 158 appreciation of investments. 159 6. Other resources of the institution. 160 7. The investment policy of the institution. 161 (b) In order to limit the authority to appropriate for 162 expenditure or accumulate under paragraph (a), a gift instrument 163 must specifically state the limitation. 164 (c) Terms in a gift instrument designating a gift as an 165 endowment, or a direction or authorization in the gift 166 instrument to use only “income,” “interest,” “dividends,” or 167 “rents, issues, or profits,” or “to preserve the principal 168 intact,” or words of similar import: 169 1. Create an endowment fund of permanent duration unless 170 other language in the gift instrument limits the duration or 171 purpose of the fund. 172 2. Do not otherwise limit the authority to appropriate for 173 expenditure or accumulate under paragraph (a). 174 (5) DELEGATION OF MANAGEMENT AND INVESTMENT FUNCTIONS.— 175 (a) Subject to any specific limitation set forth in a gift 176 instrument or in law other than this section, an institution may 177 delegate to an external agent the management and investment of 178 an institutional fund to the extent that an institution could 179 prudently delegate under the circumstances. An institution shall 180 act in good faith, with the care that an ordinarily prudent 181 person in a like position would exercise under similar 182 circumstances, in: 183 1. Selecting an agent. 184 2. Establishing the scope and terms of the delegation, 185 consistent with the purposes of the institution and the 186 institutional fund. 187 3. Periodically reviewing the agent’s actions in order to 188 monitor the agent’s performance and compliance with the scope 189 and terms of the delegation. 190 (b) In performing a delegated function, an agent owes a 191 duty to the institution to exercise reasonable care to comply 192 with the scope and terms of the delegation. 193 (c) An institution that complies with paragraph (a) is not 194 liable for the decisions or actions of an agent to which the 195 function was delegated. 196 (d) By accepting delegation of a management or investment 197 function from an institution that is subject to the laws of this 198 state, an agent submits to the jurisdiction of the courts of 199 this state in all proceedings arising from or related to the 200 delegation or the performance of the delegated function. 201 (e) An institution may delegate management and investment 202 functions to its committees, officers, or employees as 203 authorized by law other than this section. 204 (6) RELEASE OR MODIFICATION OF RESTRICTIONS ON MANAGEMENT, 205 INVESTMENT, OR PURPOSE.— 206 (a) If the donor consents in a record, an institution may 207 release or modify, in whole or in part, a restriction contained 208 in a gift instrument on the management, investment, or purpose 209 of an institutional fund. A release or modification may not 210 allow a fund to be used for a purpose other than a charitable 211 purpose of the institution. 212 (b) The court, upon application of an institution, may 213 modify a restriction contained in a gift instrument regarding 214 the management or investment of an institutional fund if the 215 restriction has become impracticable or wasteful, if it impairs 216 the management or investment of the fund, or if, because of 217 circumstances not anticipated by the donor, a modification of a 218 restriction will further the purposes of the fund. The 219 institution shall notify the Attorney General of the 220 application, and the Attorney General must be given an 221 opportunity to be heard. To the extent practicable, any 222 modification must be made in accordance with the donor’s 223 probable intention. 224 (c) If a particular charitable purpose or a restriction 225 contained in a gift instrument on the use of an institutional 226 fund becomes unlawful, impracticable, impossible to achieve, or 227 wasteful, the court, upon application of an institution, may 228 modify the purpose of the fund or the restriction on the use of 229 the fund in a manner consistent with the charitable purposes 230 expressed in the gift instrument. The institution shall notify 231 the Attorney General of the application, and the Attorney 232 General must be given an opportunity to be heard. 233 (d) If consent of the donor in a record cannot be obtained 234 by reason of the donor’s death, disability, unavailability, or 235 impossibility of identification, a governing board may modify a 236 restriction contained in a gift instrument regarding the 237 management, investment, or purpose of an institutional fund if 238 the fund has a total value of $100,000 or less and the 239 restriction has become impracticable or wasteful, impairs the 240 management, investment, or use of the fund or if, because of 241 circumstances not anticipated by the donor, a modification of a 242 restriction will further the purposes of the fund. 243 (e) If an institution determines that a restriction 244 contained in a gift instrument on the management, investment, or 245 purpose of an institutional fund is unlawful, impracticable, 246 impossible to achieve, or wasteful, the institution, 60 days 247 after obtaining written approval from the Attorney General, may 248 release or modify the restriction, in whole or part, if: 249 1. The institutional fund subject to the restriction has a 250 total value of at least $100,000 and not more than $250,000; 251 2. More than 20 years have elapsed since the fund was 252 established; and 253 3. The institution uses the property in a manner consistent 254 with the charitable purposes expressed in the gift instrument. 255 (7) REVIEWING COMPLIANCE.—Compliance with this section is 256 determined in light of the facts and circumstances existing at 257 the time a decision is made or action is taken, and not by 258 hindsight. 259 (8) APPLICATION TO EXISTING INSTITUTIONAL FUNDS.—This 260 section applies to institutional funds existing on or 261 established after the effective date of this section. As applied 262 to institutional funds existing on the effective date of this 263 section, this section governs only decisions made or actions 264 taken on or after that date. 265 (9) RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND 266 NATIONAL COMMERCE ACT.—This section modifies, limits, and 267 supersedes the federal Electronic Signatures in Global and 268 National Commerce Act, 15 U.S.C. ss. 7001 et seq., but does not 269 modify, limit, or supersede s. 101(c) of that act, 15 U.S.C. s. 270 7001(c), or authorize electronic delivery of any of the notices 271 described in s. 103(b) of that act, 15 U.S.C. s. 7001(b). 272 (10) UNIFORMITY OF APPLICATION AND CONSTRUCTION.—In 273 applying and construing this uniform act, consideration must be 274 given to the need to promote uniformity of the law with respect 275 to its subject matter among states that enact it. 276 Section 2. Section 1010.10, Florida Statutes, is repealed. 277 Section 3. This act shall take effect July 1, 2011.