N.Y. EPT Law § 8-1.9 — New York Code / Act EPT / Article 8 / Part 1 / Section 8-1.9
Trust governance
Status: in_force

§ 8-1.9 Trust governance\n  (a) For purposes of this section:\n  (1) A "trust" means a trust created solely for charitable purposes, or\na trust that continues solely for such purposes after all non-charitable\ninterests have terminated.\n  (2) "Charitable purpose" means any religious, charitable, educational\nor benevolent purpose.\n  (3) "Key person" means any person other than a trustee, whether or not\nan employee, who (i) has responsibilities, or exercises powers of\ninfluence over the trust as a whole similar to the responsibilities,\npowers, or influence of trustees and officers; (ii) manages the trust,\nor a segment of the trust that represents a substantial portion of the\nactivities, assets, income or expenses of the trust; or (iii) alone or\nwith others controls or determines a substantial portion of the trust's\ncapital expenditures or operating budget.\n  (4) An "affiliate" of a trust means any entity controlled by, or in\ncontrol of, such trust.\n  (5) "Relative" of an individual means (i) his or her spouse or\ndomestic partner as defined in section twenty-nine hundred ninety-four-a\nof the public health law; (ii) his or her ancestors, brothers and\nsisters (whether whole or half blood), children (whether natural or\nadopted), grandchildren, great-grandchildren; or (iii) the spouse or\ndomestic partner of his or her brothers, sisters, children,\ngrandchildren, and great-grandchildren.\n  (6) "Related party" means (i) any trustee or key person of the trust\nor any affiliate of the trust; (ii) any relative of any individual\ndescribed in clause (i) of this subparagraph; or (iii) an entity in\nwhich any individual described in clauses (i) and (ii) of this\nsubparagraph has a thirty-five percent or greater ownership or\nbeneficial interest or, in the case of a partnership or professional\ncorporation, a direct ownership interest in excess of five percent.\n  (7) "Independent trustee" means a trustee who: (i) is not, and has not\nbeen within the last three years, an employee of the trust or an\naffiliate of the trust, and does not have a relative who is, or has been\nwithin the last three years, a key person of the trust or an affiliate\nof the trust; (ii) has not received, and does not have a relative who\nhas received, in any of the last three fiscal years, more than ten\nthousand dollars in direct compensation from the trust or an affiliate\nof the trust; (iii) is not a current employee of or does not have a\nsubstantial financial interest in, and does not have a relative who is a\ncurrent officer of or have a substantial financial interest in, any\nentity that has provided payments, property or services to, or received\npayments, property or services from, the trust or an affiliate of the\ntrust if the amount paid by the trust to the entity or received by the\ntrust from the entity for such property or services, in any of the last\nthree fiscal years, exceeded the lesser of ten thousand dollars or two\npercent of such entity's consolidated gross revenue if the entity's\nconsolidated gross revenue was less than five hundred thousand dollars;\ntwenty-five thousand dollars if the entity's consolidated gross revenue\nwas five hundred thousand dollars or more but less than ten million\ndollars; one hundred thousand dollars if the entity's consolidated gross\nrevenue was ten million dollars or more; or (iv) is not and does not\nhave a relative who is a current owner, whether wholly or partially,\ndirector, officer or employee of the trust's outside auditor or who has\nworked on the trust's audit at any time during the past three years. For\npurposes of this subparagraph, the terms: "compensation" does not\ninclude reimbursement for expenses or the payment of trustee commissions\nor reasonable compensation as permitted by law and the governing\ninstrument; and "payment" does not include charitable contributions,\ndues or fees paid to the trust for services which the trust performs as\npart of its nonprofit purposes, or payments made by the trust at fixed\nor non-negotiable rates or amounts for services received, provided that\nsuch services by and to the trust are available to individual members of\nthe public on the same terms, and such services provided to the trust\nare not available from another source.\n  (8) "Related party transaction" means any transaction, agreement or\nany other arrangement in which a related party has a financial interest\nand in which the trust or any affiliate of the trust is a participant,\nexcept that a transaction shall not be a related party transaction if:\n(i) the transaction or the related party's financial interest in the\ntransaction is de minimis, (ii) the transaction would not customarily be\nreviewed by the board, or boards of similar organizations, in the\nordinary course of business and is available to others on the same or\nsimilar terms, or (iii) the transaction constitutes a benefit provided\nto a related party solely as a member of a class of the beneficiaries\nthat the trust intends to benefit as part of the accomplishment of its\nmission which benefit is available to all similarly situated members of\nthe same class on the same terms.\n  (9) "Independent auditor" means any certified public accountant\nperforming the audit of the financial statements of a trust required by\nsubdivision one of section one hundred seventy-two-b of the executive\nlaw.\n  (b)(1) The trustees or a designated audit committee consisting of one\nor more independent trustees of any trust required to file an\nindependent certified public accountant's audit report with the attorney\ngeneral pursuant to subdivision one of section one hundred seventy-two-b\nof the executive law shall oversee the accounting and financial\nreporting processes of the trust and the audit of the trust's financial\nstatements. The trustees or designated audit committee shall annually\nretain or renew the retention of an independent auditor to conduct the\naudit and, upon completion thereof, review the results of the audit and\nany related management letter with the independent auditor.\n  (2) The trustees or a designated audit committee consisting of one or\nmore independent trustees of any trust required to file an independent\ncertified public accountant's audit report with the attorney general\npursuant to subdivision one of section one hundred seventy-two-b of the\nexecutive law and that in the prior fiscal year had or in the current\nfiscal year reasonably expects to have annual revenue in excess of one\nmillion dollars shall, in addition to those duties set forth in\nsubparagraph one of this paragraph:\n  (A) review with the independent auditor the scope and planning of the\naudit prior to the audit's commencement;\n  (B) upon completion of the audit, review and discuss with the\nindependent auditor: (i) any material risks and weaknesses in internal\ncontrols identified by the auditor; (ii) any restrictions on the scope\nof the auditor's activities or access to requested information; (iii)\nany significant disagreements between the auditor and management; and\n(iv) the adequacy of the trust's accounting and financial reporting\nprocesses;\n  (C) annually consider the performance and independence of the\nindependent auditor; and\n  (D) if the duties required by this section are performed by an audit\ncommittee, report on the committee's activities to the trustees.\n  (4) If a trust is under the control of another trust or a corporation,\nthe trustees or designated audit committee of the controlling trust, or\nthe board or designated audit committee of the board of the controlling\ncorporation, may perform the duties required by this paragraph.\n  (5) Only independent trustees may participate in deliberations or\nvoting relating to matters set forth in this section, provided that\nnothing in this paragraph shall prohibit the board or designated audit\ncommittee from requesting that a person with an interest in the matter\npresent information as background or answer questions at a committee or\nboard meeting prior to the commencement of deliberations or voting\nrelating thereto.\n  (c) (1) Notwithstanding any provision of the trust instrument to the\ncontrary, no trust shall enter into any related party transaction unless\nthe transaction is determined by the trustees, or an authorized\ncommittee thereof, to be fair, reasonable and in the trust's best\ninterest at the time of such determination. Any trustee, officer or key\nemployee who has an interest in a related party transaction shall\ndisclose in good faith to the trustees, or an authorized committee\nthereof, the material facts concerning such interest.\n  (2) With respect to any related party transaction in which a related\nparty has a substantial financial interest, the trustees, or an\nauthorized committee thereof, shall:\n  (A) Prior to entering into the transaction, consider alternative\ntransactions to the extent available;\n  (B) Approve the transaction by not less than a majority vote of the\ntrustees or committee members present at the meeting; and\n  (C) Contemporaneously document in writing the basis for the trustees'\nor authorized committee's approval, including consideration of any\nalternative transactions.\n  (3) The trust instrument, by-laws or any policy adopted by the\ntrustees may contain additional restrictions on related party\ntransactions and additional procedures necessary for the review and\napproval of such transactions, or provide that any transaction in\nviolation of such restrictions shall be void or voidable.\n  (4) The attorney general may bring an action to enjoin, void or\nrescind any related party transaction or proposed related party\ntransaction that violates any provision of this article or was otherwise\nnot reasonable or in the best interests of the trust at the time the\ntransaction was approved, or to seek restitution, and the removal of\ntrustees or officers, or seek to require any person or entity to:\n  (A) Account for any profits made from such transaction, and pay them\nto the trust;\n  (B) Pay the trust the value of the use of any of its property or other\nassets used in such transaction;\n  (C) Return or replace any property or other assets lost to the trust\nas a result of such transaction, together with any income or\nappreciation lost to the trust by reason of such transaction, or account\nfor any proceeds of sale of such property, and pay the proceeds to the\ntrust together with interest at the legal rate; and\n  (D) Pay, in the case of willful and intentional conduct, an amount up\nto double the amount of any benefit improperly obtained.\n  (5) The powers of the attorney general provided in this section are in\naddition to all other powers the attorney general may have under this\nchapter or any other law.\n  (6) No related party may participate in deliberations or voting\nrelating to a related party transaction in which he or she has an\ninterest; provided that nothing in this section shall prohibit the\ntrustees or designated audit committee from requesting that a related\nparty present information or answer questions concerning a related party\ntransaction at a trustees or committee meeting prior to the commencement\nof deliberations or voting relating to the related party transaction.\n  (7) In an action by any person or entity other than the attorney\ngeneral, it shall be a defense to a claim of violation of any provisions\nof this paragraph that a transaction was fair, reasonable and in the\ntrust's best interest at the time the trust approved the transaction.\n  (8) In an action by the attorney general with respect to a related\nparty transaction not approved in accordance with subparagraph one or\ntwo of this paragraph at the time it was entered into, whichever is\napplicable, it shall be a defense to a claim of violation of any\nprovisions of this paragraph that (i) the transaction was fair,\nreasonable and in the trust's best interest at the time the trust\napproved the transaction and (ii) prior to receipt of any request for\ninformation by the attorney general regarding the transaction, the\ntrustees have: (A) ratified the transaction by finding in good faith\nthat it was fair, reasonable and in the trust's best interest at the\ntime the trustee approved the transaction; and, with respect to any\nrelated party transaction involving a charitable corporation and in\nwhich a related party has a substantial financial interest, considered\nalternative transactions to the extent available, approving the\ntransaction by not less than a majority vote of the trustees or\ncommittee members present at the meeting; (B) documented in writing the\nnature of the violation and the basis for the trustees' or committee's\nratification of the transaction; and (C) put into place procedures to\nensure that the trustee complies with subparagraphs one and two of this\nparagraph as to related party transactions in the future.\n  (d) (1) Except as provided in subparagraph four of this paragraph,\nevery trust shall adopt, and oversee the implementation of, and\ncompliance with, a conflict of interest policy to ensure that its\ntrustees, officers and key persons act in the best interest of the trust\nand its beneficiaries and comply with applicable legal requirements,\nincluding but not limited to the requirements set forth in this\nparagraph.\n  (2) The conflict of interest policy shall include, at a minimum, the\nfollowing provisions:\n  (A) a definition of the circumstances that constitute a conflict of\ninterest;\n  (B) procedures for disclosing a conflict of interest or possible\nconflict of interest to the trustees or to a committee of the trustees,\nand procedures for the trustees or committee to determine whether a\nconflict exists;\n  (C) a requirement that the person with the conflict of interest not be\npresent at or participate in any deliberation or vote on the matter\ngiving rise to such conflict, provided that nothing in this section\nshall prohibit the trustees or a committee from requesting that the\nperson with the conflict of interest present information as background\nor answer questions at a trustees or committee meeting prior to the\ncommencement of deliberations or voting relating thereto;\n  (D) a prohibition against any attempt by the person with the conflict\nto influence the deliberation or voting on the matter giving rise to\nsuch conflict;\n  (E) a requirement that the existence and resolution of the conflict be\ndocumented in the trust's records, including in the minutes of any\nmeeting at which the conflict was discussed or voted upon; and\n  (F) procedures for disclosing, addressing, and documenting related\nparty transactions in accordance with this paragraph.\n  (3) The conflict of interest policy shall require that prior to a\ntrustee's initial appointment, and annually thereafter, such trustee\nshall complete, sign and file with the records of the trust a written\nstatement identifying any entity of which he or she is an officer,\ndirector, trustee, member, owner (either as a sole proprietor or a\npartner), or employee and with which the trust has a relationship, and\nany transaction in which the trust is a participant and in which the\ntrustee might have a conflicting interest. The policy shall require that\neach trustee annually resubmit such written statement. The trustees\nshall provide a copy of all completed statements to the chair of the\naudit committee, if there is an audit committee.\n  (4) A trust that has adopted and possesses a conflict of interest\npolicy pursuant to federal, state or local laws that is substantially\nconsistent with the provisions of subparagraph two of this paragraph\nshall be deemed in compliance with provisions of this paragraph.\n  (5) Nothing in this paragraph shall be interpreted to require a trust\nto adopt any specific conflict of interest policy not otherwise required\nby this paragraph or any other law or rule, or to supersede or limit any\nrequirement or duty governing conflicts of interest required by any\nother law or rule.\n  (e) (1) Except as provided in subparagraph three of this paragraph,\nthe trustees of every trust that has twenty or more employees and in the\nprior fiscal year had annual revenue in excess of one million dollars\nshall adopt, and oversee the implementation of, and compliance with, a\nwhistleblower policy to protect from retaliation persons who report\nsuspected improper conduct. Such policy shall provide that no officer,\ntrustee, employee or volunteer of a trust who in good faith reports any\naction or suspected action taken by or within the trust that is illegal,\nfraudulent or in violation of any adopted policy of the trust shall\nsuffer intimidation, harassment, discrimination or other retaliation or,\nin the case of employees, adverse employment consequence.\n  (2) The whistleblower policy shall include the following provisions:\n  (A) Procedures for the reporting of violations or suspected violations\nof laws or trust policies, including procedures for preserving the\nconfidentiality of reported information;\n  (B) A requirement that a trustee, officer or employee of the trust be\ndesignated to administer, the whistleblower policy and to report to the\ntrustees or an authorized committee thereof, except that trustees who\nare employees may not participate in any board or committee\ndeliberations or voting relating to administration of the whistleblower\npolicy;\n  (C) A requirement that the person who is the subject of a\nwhistleblower complaint not be present at or participate in board or\ncommittee deliberation or vote on the matter relating to such complaint,\nprovided that nothing in this subparagraph shall prohibit the board or\ncommittee from requesting that the person who is subject to the\ncomplaint present information as background or answer questions at a\ncommittee or board meeting prior to the commencement of deliberations or\nvoting relating thereto; and\n  (D) A requirement that a copy of the policy be distributed to all\ntrustees, officers, employees and volunteers, with instructions on how\nto comply with the procedures set forth in the policy. For purposes of\nthis subdivision, posting the policy on the corporation's website or at\nthe corporation's offices in a conspicuous location accessible to\nemployees and volunteers are among the methods a corporation may use to\nsatisfy the distribution requirement.\n  (3) A trust that has adopted and possesses a whistleblower policy\npursuant to federal, state or local laws that is substantially\nconsistent with the provisions of subparagraph two of this paragraph\nshall be deemed in compliance with the provisions of this paragraph.\n  (4) Nothing in this paragraph shall be interpreted to relieve any\ntrust from any additional requirements in relation to internal\ncompliance, retaliation, or document retention required by any other law\nor rule.\n