An Act To Enact the Uniform Prudent Management of Institutional Funds Act
Maine Legislature, Session 124, LD 1402
Committee: Judiciary
Sponsors: PRIEST, BLISS, BEAULIEU, BRYANT, CLEARY, CROCKETT, DILL, HILL, NASS, HASTINGS

Legislative Document 
No. 1402 
H.P.981 
House of Representatives, April 2, 2009 
An Act To Enact the Uniform Prudent Management of Institutional 
Funds Act 
Reference to the Committee on Judiciary suggested and ordered printed. 
Presented by Representative PRIEST of Brunswick. 
Cosponsored by Senator BLISS of Cumberland and 
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MILLICENT M. MacFARLAND 
Clerk 
Representatives: BEAULIEU of Auburn, BRYANT of Windham, CLEARY of Houlton, 
CROCKETT of Bethel, DILL of Cape Elizabeth, HILL of York, NASS of Acton, Senator: 
HASTINGS of Oxford. 
Printed on recycled paper. 
Be it enacted by the People ofthe State of Maine as follows: 
Sec. 1. 13 MRSA c. 97, as amended, is repealed. 
UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT 
Prefatory Note 
Reasons for Revision. The Uniform Prudent Management of illstitutiona1 Funds Act 
(UPMlF A) ryPlaces the Uniform Management of illstitutional Funds Act (UMlF A). The 
National Conference of Commissioners on Uniform State Laws approved UMlFA in 
1972, and 47 jurisdictions have enacted the act. UMlFA provided guidance and authority 
to charitable organizations within its scope concerning the management and investment 
of funds held by those organizations, UMIF A provided endowment spending rules that 
did not depend on trust accounting principles of income and principal, and UMlF A 
permitted the release of restrictions on the use or management of funds under certain 
circumstances. The changes UMlF A made to the law permitted charitable organizations 
to use modern investment techniques such as total-return investing and to determine 
endowment fund spending based on spending rates rather than on determinations of 
"income" and "principal." 
UMlF A was drafted almost 35 years ago, and portions of it are now out of date. The 
prudence standards in UMlF A have provided useful guidance, but prudence norms evolve 
over time. The new Act provides modern articulations of the prudence standards for the 
management and investment of charitable funds and for endowment spending. The 
Uniform Prudent illvestor Act (upIA), an Act promulgated in 1994 and already enacted 
in 43 jurisdictions, served as a model for many of the revisions. UPIA updates rules on 
investment decision making for trusts, including charitable trusts, and imposes additional 
duties on trustees for the protection of beneficiaries. UPMlF A applies these rules and 
duties to charities organized as nonprofit corporations. UPMlF A does not apply to trusts 
managed by corporate and other fiduciaries that are not charities, because UPIA provides 
management and investment standards for those trusts. 
ill applying principles based on UPIA to charities organized as nonprofit 
corporations, UPMlF A combines the approaches taken by UPIA and by the Revised 
Model Nonprofit Corporation Act (RMNCA). UPMlF A reflects the fact that standards 
for managing and investing institutional funds are and should be the same regardless of 
whether a charitable organization is organized as a trust, a nonprofit corporation, or some 
other entity. See Bevis Longstreth, Modern illvestment Management and the Prudent 
Man Rule 7 (1986) (stating "[t]he modern paradigm of prudence applies to all fiduciaries 
who are subject to some version of the prudent man rule, whether under ERISA, the 
private foundation provisions of the Code, UMlFA, other state statutes, or the common 
law."); Harvey P. Dale, Nonprofit Directors and Officers - Duties and Liabilities for 
Investment Decisions, 1994 N.Y.U. Conf. Tax Plan. 501(c)(3) Org's. Ch. 4. 
UPMlF A provides guidance and authority to charitable organizations concerning the 
management and investment of funds held by those organizations, and UPMlF A imposes 
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additional duties on those who manage and invest charitable funds. These duties provide 
additional protections for charities and also protect the interests of donors who want to 
see their contributions used wisely. 
UPMIF A modernizes the rules governing expenditures from endowment funds, both 
to provide stricter guidelines on spending from endowment funds and to give institutions 
the ability to cope more easily with fluctuations in the value of the endowment. 
Finally, UPMIF A updates the provisions governing the release and modification of 
restrictions on charitable funds to permit more efficient management of these funds. 
These provisions derive from the approach taken in the Uniform Trust Code (UTC) for 
modifying charitable trusts. Like the UTC provisions, UPMIFA's modification rules 
preserve the historic position of the attorneys general in most states as the overseers of 
charities. 
As under UMIF A, the new Act applies to charities organized as charitable trusts, as 
nonprofit corporations, or in some other manner, but the rules do not apply to funds 
managed by trustees that are not charities. 
Thus, the Act does not apply to trusts 
managed by corporate or individual trustees, but the Act does apply to trusts managed by 
charities. 
Prudent Management and Investment. 
UMIF A applied the 1972 prudence 
standard to investment decision making. In contrast, UPMIF A will give charities updated 
mid more useful guidance by incorporating language from UPIA, modified to fit the 
special needs of charities. The revised Act spells out more of the factors a charity should 
consider in making investment decisions, thereby imposing a modern, well accepted, 
prudence standard based on UPIA. 
Among the expressly enumerated prudence factors in UPMIF A is "the preservation 
of the endowment fund," a standard not articulated in UMIFA. 
In addition to identifying factors that a charity must consider in making management 
and investment decisions, UPMIF A requires a charity and those who manage and invest 
its funds to: 
1. Give primary consideration to donor intent as expressed in a gift 
instrument, 
2. Act in good faith, with the care an ordinarily prudent person would 
exercise, 
3. Incur only reasonable costs in investing and managing charitable funds, 
4. Make a reasonable effort to verify relevant facts, 
5. Make decisions about each asset in the context of the portfolio of 
investments, as part of an overall investment strategy, 
6. Diversify investments unless due to special circumstances, the purposes 
of the fund are better served without diversification, 
7. Dispose of unsuitable assets, and . 
8. In general, develop an investment strategy appropriate for the fund and 
the charity. 
UMIF A did not articulate these requirements. 
Thus, UPMIF A strengthens the rules governing management and investment decision 
making by charities and provides more guidance for those who manage and invest the 
funds. 
Donor Intent with Respect to Endowments. UPMIF A improves the protection of 
donor intent with respect to expenditures from endowments. 
When a donor expresses 
intent clearly in a written gift instrument, the Act requires that the charity follow the 
donor's instructions. When a donor's intent is not so expressed, UPMIFA directs the 
charity to spend an amount that is prudent, consistent with the purposes of the fund, 
relevant economic factors, and the donor's intent that the fund continue in perpetuity. 
This approach allows the charity to give effect to donor intent, protect its endowment, 
assure generational equity, and use the endowment to support the purposes for which the 
endowment was created. 
Retroactivity. Like UMIFA, UPIA, the Uniform Principal and Income Act of 1961, 
and the Uniform Principal and Income Act of 1997, UPMIF A applies retroactively to 
institutional funds created before and prospectively to institutional funds created after 
enactment of the statute. Regarding the considerations motivating this treatment of the 
issues, see the comment to Section 4. 
Endowment Spending. 
UPMIF A improves the endowment spending rule by 
eliminating the concept of historic dollar value and providing better guidance regarding 
the operation of the prudence standard. Under UMIFA a charity can spend amounts 
above historic dollar value that the charity determines to be prudent. The Act directs the 
charity to focus on the purposes and needs of the charity rather than on the purposes and 
perpetual nature of the fund. Amounts below historic dollar value cannot be spent. The 
Drafting Committee concluded that this endowment spending rule created numerous 
problems and that restructuring the rule would benefit charities, their donors, and the 
public. The problems include: 
1. Historic dollar value fixes valuation at a moment in time, and that moment is 
arbitrary. If a donor provides for a gift in the donor's will, the date of valuation for the 
gift will likely be the donor's date of death. (UMIF A left uncertain what the appropriate 
date for valuing a testamentary gift was.) The determination of historic dollar value can 
vary significantly depending upon when in the market cycle the donor dies. In addition, 
the fund may be below historic dollar value at the time the charity receives the gift if the 
value of the asset declines between the date of the donor's death and the date the asset is 
actually distributed to the charity from the estate. 
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2. After a fund has been in existence for a number of years, historic dollar value 
may become meaningless. Assuming reasonable long teIDl investment success, the value 
of the typical fund will be well above historic dollar value, and historic dollar value will 
no longer represent the purchasing power of the original gift. Without better guidance on 
spending the increase in value of the fund, historic dollar value does not provide adequate 
protection for the fund. If a charity views the restriction on spending simply as a 
direction to preserve historic dollar value, the charity may spend more than it should. 
3. The Act does not provide clear answers to questions a charity faces when the 
value of an endowment fund drops below historic dollar value. 
A fund that is so 
encumbered is commonly called an "underwater" fund. Conflicting advice regarding 
whether an organization could spend from an underwater fund has led to difficulties for 
those managing charities. If a charity concluded that it could continue to spend trust 
accounting income until a fund regained its historic dollar value, the charity might invest 
for income rather than on a total-return basis. Thus, the historic dollar value rule can 
cause inappropriate distortions in investment policy and can ultimately lead to a decline 
in a fund's real value. If, instead, a charity with an underwater fund continues to invest 
for growth, the charity may be unable to spend anything from an underwater endowment 
fund for several years. The inability of a charity to spend anything from an endowment is 
likely to be contrary to donor intent, which is to provide current benefits to the charity. 
The Drafting Committee concluded that providing clearly articulated guidance on the 
prudence rule for spending from an endowment fund, with emphasis on the permanent 
nature of the fund, would provide the best protection of the purchasing power of 
endowment funds. 
Presumption of Imprudence. 
UPMIF A includes as an optional provlSlon a 
presumption of imprudence if a charity spends more than seven percent of an endowment 
fund in anyone year. 
The presumption is meant to protect against spending an 
endowment too quickly. Although the Drafting Committee believes that the prudence 
standard of UPMIF A provides appropriate and adequate protection for endowments, the 
Committee provided the option for states that want to include a mechanical guideline in 
the statute. A major drawback to any statutory percentage is that it is unresponsive to 
changes in the rate of inflation or deflation. 
Modification of Restrictions on Charitable Funds. UPMIF A clarifies that the 
doctrines of cy pres and deviation apply to funds held by nonprofit corporations as well 
as to funds held by charitable trusts. Courts have applied trust law rules to nonprofit 
corporations in the past, but the Drafting Committee believed that statutory authority for 
applying these principles to nonprofit corporations would be helpful. UMIF A peIDlitted 
release of restrictions but left the application of cy pres uncertain. Under VPMIF A, as 
under trust law, the court will deteIDline whether and how to apply cy pres or deviation 
and the attorney general will receive notice and have the opportunity to participate in the 
proceeding. 
The one addition to existing law is that UPMIF A gives a charity the 
authority to modify a restriction on a fund that is both old and small. For these funds, the 
expense of a trip to court will often be prohibitive. By peIDlitting a charity to make an 
appropriate modification, money is saved for the charitable purposes of the charity. Even 
with respect to small, old funds, however, the charity must notify the attorney general of 
the charity's intended action. Of course, if the attorney general has concerns, he or she 
can seek the agreement of the charity to change or abandon the modification, and if that 
fails, can commence a court action to enjoin it. Thus, in all types of modification the 
attorney general continues to be the protector both. of the donor's intent and of the 
public's interest in charitable funds. 
Other Organizational Law. For matters not governed by UPMIFA, a charitable 
organization will continue to be governed by rules applicable to charitable trusts, if it is 
organized as a trust, or rules applicable to nonprofit corporations, if it is organized as a 
nonprofit corporation. 
Relation to Trust Law. Although UPMIFA applies a number of rules from trust law 
to institutions organized as nonprofit corporations, in two respects UPMIF A creates rules 
that do not exist under the common law applicable to trusts. The endowment spending 
rule of Section 4 and the provision for modifying a small, old fund in subsection (d) of 
Section 6 have no counterparts in the common law or the UTC. The Drafting Committee 
believes that these rules could be useful to charities organized as trusts, and the 
Committee recommends confonning amendments. to the UTC and the Principal and 
Income Act to incorporate these changes into trust law. 
Sec. 2. 13 MRSA c. 99 is enacted to read: 
CHAPTER 99 
UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT 
§5101. Short title 
This chapter may be known and cited as "the Uniform Prudent Management of 
Institutional Funds Act. " 
§5102. Definitions 
As used in this chapter, unless the context otherwise indicates, the following terms 
have the following meanings. 
1. 
Charitable purpose. "Charitable purpose" means the relief of poverty, the 
advancement of education or religion, the promotion of health, the promotion of a 
governmental purpose or any other purpose the achievement of which is beneficial to the 
community. 
2. 
Endowment fund. "Endowment fund" means an institutional fund or part 
thereof that, under the terms of a gift instrument, is not wholly expendable by the 
institution on a current basis. 
"Endowment fund" does not include assets that an 
institution designates as an endowment fund for its own use. 
3. Gift instrument. "Gift instrument" means a record or records, including an 
institutional solicitation, under which property is granted to, transferred to or held by an 
institution as an institutional fund. 
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4. Institution. "fustitution" means: 
A. 
A person, other than an individual, organized and operated exclusively for 
charitable purposes; 
B. A government or governmental subdivision, agency or instrumentality, to the 
extent that it holds funds exclusively for a charitable purpose; or 
C. A trust that had both charitable and noncharitable interests, after all noncharitable 
interests have terminated. 
5. Institutional fund. 
"fustitutional fund" means a fund held by an institution 
exclusively for charitable purposes. "fustitutional fund" does not include: 
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A. Program-related assets; 
B. A fund held for an institution by a trustee that is not an institution; or 
C. A fund in which a beneficiary that is not an institution has an interest, other than 
an interest that could arise upon violation or failure of the purposes of the fund. 
6. Person. "Person" means an individual, corporation, business trust, estate, trust, 
partnership, limited liability company, association, joint venture, public corporation, 
government or governmental subdivision, agency or instrumentality or any other legal or 
commercial entity. 
7. 
Program-related asset. "Program-related asset" means an asset held by an 
institution primarily to a:ccomplish a charitable purpose of the institution and not 
primarily for investment. 
8. Record. "Record" means information that is inscribed on a tangible medium or 
that is stored in an electronic or other medium and is retrievable in perceivable form. 
Uniform Comment 
(This is Section 2 of the Uniform Prudent Management of fustitutional Funds Act 
(2006).) 
Subsection (1). Charitable Purpose. The definition of charitable purpose follows 
that of UTC § 405 and Restatement (Third) of Trusts § 28 (2003). This long-familiar 
standard derives from the English Statute of Charitable Uses, enacted in 1601. 
Some 17 states have created statutory definitions of charitable purpose for various 
purposes. See, e.g., 10 Pa. CONS. STAT. § 162.3 (2005) (defining charitable purpose 
within the Solicitation of Funds for Charitable Purposes Act to include "humane," 
"patriotic," social welfare and advocacy," and "civic" purposes). 
The definition in 
subsection (1) applies for purposes of this Act and does not affect other definitions of 
charitable purpose. 
Subsection (2). Endowment Fund. An endowment fund is an institutional fund or a 
part of an institutional fund that is not wholly expendable by the institution on a current 
basis. A restriction that makes a fund an endowment fund arises from the terms of a gift 
instrument. If an institution has more than one endowment fund, under Section 3 the 
institution can manage and invest some or all endowment funds together. Section 4 and 
Section 6 must be applied to individual funds and cannot be applied to a group of funds 
that may be managed collectively for investment purposes. 
Board-designated funds are institutional funds but not endowment funds. The rules 
on expenditures and modification of restrictions in this Act do not apply to restrictions 
that an institution places on an otherwise unrestricted fund that the institution holds for its 
own benefit. The institution may be able to change these restrictions itself, subject to 
internal rules and to the fiduciary duties that apply to those that manage the institution. 
If an institution transfers assets to another institution, subject to the restriction that the 
other iristitution hold the assets as an endowment, then the second institution will hold the· 
assets as an endowment fund. 
Subsection (3). Gift Instrument. The term gift instrument refers to the records that 
establish the terms of a gift and may consist of more than one document. The definition 
clarifies that the only legally binding restrictions on a gift are the terms set forth in 
writing. 
As used in this definition, "record" is an expansive concept and means a writing in 
any form, including electronic. The term includes a will, deed, grant, conveyance, 
agreement, or memorandum, and also includes writings that do not have a donative 
purpose. For example, under some circumstances the bylaws of the institution, minutes of 
the board of diiectors, or canceled checks could be a gift instrument or be one of several 
records constituting a gift instrument. Although the term can include any of these 
records, a record will only become a gift instrument if both the donor and the institution 
were or should have been aware of its terms when the donor made the gift. For example, 
if a donor sends a contribution to an institution for its general purposes, then the articles 
of incorporation may be used to clarify those purposes. If, in contrast, the donor sends a 
letter· explaining that the institution should use the contribution for its "educational 
projects concerning teenage depression," then any funds received in response must be 
used for that purpose and not for broader purposes otherwise permissible under the 
articles of incorporation. 
Solicitation materials may constitute a gift instrument. For example, a solicitation that 
suggests in writing that any gifts received pursuant to the solicitation will be held as an 
endowment may be integrated with other writings and may be considered part of the gift 
instrument. Whether the terms of the solicitation become part of the gift instrument will 
depend upon the circumstances, including whether a subsequent writing superseded the 
terms of the solicitation. Each gift received in response to a solicitation will be subject to 
any restrictions indicated in the gift instrument pertaining to that gift. For example, if an 
initial gift establishes an endowment fund, and the charity then solicits additional gifts "to 
be held as part of the Charity X Endowment Fund," those additional gifts will each be 
subject to the restriction that the gifts be held as part of that endowment fund. 
The term gift instrument includes matching funds provided by an employer or some 
other person. Whether matching funds are treated as part of the endowment fund or 
otherwise will depend on the terms of the matching gift. 
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The term gift instrument also includes an appropriation by a legislature or other 
public or governmental body for the benefit of an institution. 
Subsection (4). Institution. The Act applies generally to institutions organized and 
operated exclusively for charitable purposes. The term includes charitable organizations 
created 
as 
nonprofit 
corporations, 
unincorporated 
associations, 
governmental 
subdivisions or agencies, or any form of entity, however organized, that is organized and 
operated exclusively for charitable purposes. The term includes a trust organized and 
operated exclusively for charitable purposes, but only if a charity acts as trustee. This 
approach leaves unchanged the coverage of UMIF A. The exclusion of "individual" from 
the definition of institution is not intended to exclude a corporation sole. 
.Although UPMIFA does not apply to all charitable trusts, many of UPMIFA's 
provisions derive from trust law. 
Prudent investor standards apply to trustees of 
charitable trusts in states that have adopted UPIA. Trustees of charitable trusts can use 
the doctrines of cy pres and deviation to modify trust provisions, and the UTe includes a 
number of modification provisions. The Uniform Principal and fucome Act permits 
allocation between principal and income to facilitate total-return investing. Charitable 
trusts not included in UPMIF A, primarily those managed by corporate trustees and 
individuals, will lose the benefits of UPMIFA's endowment spending rule and the 
provision permitting a charity to apply cy pres, without court supervision, for 
modifications to a small, old fund. Enacting jurisdictions may choose to incorporate 
these rules into existing trust statutes to provide the benefits to charitable funds managed 
by corporate trustees. 
The definition of institution includes governmental organizations that hold funds 
exclusively for the purposes listed in the definition. A governmental entity created by 
state law may fall outside the definition on account of the form of organization under 
which the state created it. Because state arrangements are so varied, creating a definition 
that encompasses all charitable entities created by states is not feasible. States should 
consider applying the core principles of UPMIF A to such governmental institutions. For 
example, the control over a state university may be held by a State Board of Regents. In 
that situation, the state may have created a governing structure by statute or in the state 
constitution so that the university is, in effect, privately chartered. The Drafting 
Committee does not intend to exclude these universities from the definition of institution, 
but additional state legislation may be necessary to address particular situations. 
Subsection (5). Institutional Fund. The term institutional fund includes any fund 
held by an institution for charitable purposes, whether the fund is expendable currently or 
subject to restrictions. The term does not include a fund held by a trustee that is not an 
institution. 
Some institutions combine assets from multiple funds for investment purposes, and 
some institutions invest funds from different institutions in a common fund. Typically 
each fund is assigned units representing the share value of the individual fund. The assets 
are invested collectively, permitting more efficient investment and improved 
diversification of the overall portfolio. The collective fund makes annual distributions to 
the individual funds based on the units held by each fund. For purposes of Section 3 [and 
Section 5], the collective fund is considered one institutional fund. Section 4 and Section 
apply to each fund individually and not to the collective fund. 
Assets held by an institution primarily for program-related purposes rather than 
exclusively for investment are not subject to UPMIF A. For example, a university may 
purchase land adjacent to its campus for future development. The purchase might not 
meet prudent investor standards for commercial real estate, but the purchase may be 
appropriate because the university needs to build a new dormitory. 
The classroom 
buildings, administration buildings, and dormitories held by the university all have value 
as property, but the university does not hold those buildings as financial assets for 
investment purposes. The Act excludes from the prudent investor norms those assets that 
a charity uses to conduct its charitable activities, but does not exclude assets that have a 
tangential tie to the charitable purpose of the institution but are held primarily for 
investment purposes. 
A fund held by an institution is not an institutional fund if any beneficiary of the fund 
is not an institution. For example, a charitable remainder trust held by a charity as trustee 
for the benefit of the donor during the donor's lifetime, with the remainder interest held 
by the charity, is not an institutional fund. However, this subsection treats as an 
institution a charitable remainder trust that continues to operate for charitable purposes 
after the termination of the noncharitable interests; The Act will have only a limited effect 
on a charitable remainder trust that terminates after the noncharitable interest ends. 
During the period required to complete the distribution of the trust's property, the 
prudence norm will apply to the actions of the trustee, but the short timeframe will affect 
investment decision making. 
Subsection (6). Person. The Act uses as the definition of person the definition 
approved by the National Conference of Commissioners on Uniform State Laws. The 
definition of institution uses the term person, but to be an institution a person must be 
organized and operated exclusively for charitable purposes. A person with a commercial 
purpose cannot be an institution. 
Thus, although the definition of person includes 
"business trust" and "any other ... commercial entity," the Act does not apply to an 
entity organized for business purposes and not exclusively for charitable purposes. 
Further, the definition of person includes trusts, but only trusts managed by charities can 
be institutional funds. UPMIF A does not apply to trusts managed by corporate trustees or 
by individual trustees. 
If a governing instrument provides that a fund will revert to the donor if, and only if, 
the institution ceases to exist or the purposes of the fund fail, then the fund will be 
considered an institutional fund until such contingency occurs. 
Subsection (7). Program-Related Asset. Although UPMIFA does not apply to 
program-related assets, if program-related assets serve, in part, as investments for an 
institution, then the institution should identify categories for reporting those investments 
and should establish investment criteria for the investments that are reasonably related to 
achieving the institution's charitable purposes. For example, a program providing below-
market loans to inner-city businesses may be "primarily to accomplish a charitable 
purpose of the institution" but also can be considered, in part, an investment. The 
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institution should create reasonable credit standards and other guidelines for the program 
to increase the likelihood that the loans will be repaid. 
Subsection (8). Record. 1bis deftnition was added to clarify that the deftnition of 
instrument includes electronic records as deftned in Section 2(8) of the Uniform 
Electronic Transactions Act (1999). 
§5103. Standard of conduct in managing and investing institutional fund 
1. Consideration of purposes. Subject to the intent of a donor expressed in a gift 
instrument, an institUtion, in managing and investing an institutional fund, shall consider 
the charitable purposes of the institution and the purposes of the institutional fund. 
2. Loyalty; good faith; care. In addition to complying with the duty of loyalty 
imposed by law other than this chapter, each person responsible for managing and 
investing an institutional fund shall manage and invest the fund in good faith and with the 
care an ordinarily prudent person in a like position would exercise under similar 
circumstances. 
3. Costs; facts. In managing and investing an institutional fund, an institution: 
A. May incur only costs that are appropriate and reasonable in relation to the assets, 
the purposes of the institution and the skills available to the institution; and 
B. Shall make a reasonable effort to verify facts relevant to the management and 
investment of the fund. 
4. Pooling funds. An institution may pool 2 or more institutional funds for purposes 
of management and investment. 
5. Rules. Except as otherwise provided by a gift instrument, the following rules 
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A. In managing and investing an institutional fund, the following factors, if relevant, 
must be considered: 
(1) General economic conditions; 
(2) The possible effect of inflation or deflation; 
(3) The expected tax consequences, if any, of investment decisions or strategies; 
(4) The role that each investment or course of action plays within the overall 
investment portfolio of the fund; 
(5) The expected total return from income and the appreciation of investments; 
(6) Other resources ofthe institution; 
(7) The needs of the institution and the fund to make distributions and to 
preserve capital; and 
(8) An asset's special relationship or special value, if any, to the charitable 
purposes of the institution. 
B. Management and investment decisions about an individual asset must be made 
not iri isolation but rather in the context of the institutional fund's portfolio of 
investments as a whole and as a part of an overall investment strategy having risk and 
return objectives reasonably suited to the fund and to the institution. 
C. Except as otherwise provided by law other than this chapter, an institution may 
invest in any kind of property or type of investment consistent with this section. 
D. An institution shall diversify the investments of ail institutional fund unless the 
institution reasonably determines that, because of special circumstances, the purposes 
of the fund are better served without diversification. 
E. Within a reasonable time after receiving property, an institution shall make and 
carry out decisions concerning the retention or disposition of the property or to 
rebalance a portfolio, in order to bring the institutional fund into compliance with the 
purposes, terms and distribution requirements of the institution as necessary to meet 
other circumstances of the institution and the requirements of this chapter. 
F. A person that has special skills or expertise, or is selected in reliance upon the 
person's representation that the person has special skills or expertise, has a duty to use 
those skills or that expertise in managing and investing institutional funds. 
Uniform Comment 
(This is Section 3 of the Uniform Prudent Management of Institutional Funds Act 
(2006).) 
Purpose and Scope of Revisions. This section adopts the prudence standard for 
investment decision making. The section directs directors or others responsible for 
managing and investing the funds of an institution to act as a prudent investor would, 
using a portfolio approach in making investments and considering the risk and return 
objectives of the fund. The section lists the factors that commonly bear on decisions in 
fiduciary investing and incorporates the duty to diversify investments absent a conclusion 
that special circumstances make a decision not to diversify reasonable. Thus, the section 
follows modem portfolio theory for investment decision making. Section 3 applies to all 
funds held by an institution, regardless of whether the institution obtained the funds by 
gift or otherwise and regardless of whether the funds are restricted. 
The Drafting Committee discussed extensively the standard .that should govern 
nonprofit managers. UMIF A states the standard as "ordinary business care and prudence 
under the facts and circumstances prevailing at the time of the action or decision." Since 
the decision in Stern v. Lucy Webb Hayes National Training Schoolfor Deaconesses, 381 
F. Supp. 1003 (1974), the trend has been to hold directors of nonprofit corporations to a 
standard nominally similar to the corporate standard but with the recognition that the 
facts and circumstances considered include the fact that the entity is a charity and not a 
business corporation. 
The language of the prudence standard adopted in UPMIF A is derived from the 
RMNCA and from the prudent investor rule of UPIA. The standard is consistent with the 
business judgment standard under corporate law, as applied to charitable institutions. 
That is, a manager operating a charitable organization under the business judgment rule 
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would look to the same factors as those identified by the prudent investor rule. The 
standard for prudent investment set forth in Section 3 first states the duty of care as 
articulated in the RMNCA, but provides more specific guidance for those managing and 
investing institutional funds by incorporating language from UPIA. The criteria derived 
from UPIA are consistent with good practice under current law applicable to nonprofit 
corporations. 
Trust law norms already inform managers of nonprofit corporations. The Preamble 
to UPIA explains: "Although the Uniform Prudent Investor Act by its terms applies to 
trusts and not to charitable corporations, the standards of the Act can be expected to 
inform the investment responsibilities of directors and officers of charitable 
corporations." See also, Restatement (Third) of Trusts:· Prudent illvestor Rule § 379, 
Comment b, at 190 (l992) (stating that "absent a contrary statute or other provision, the 
prudent investor rule applies to investment of funds held for charitable corporations."). 
Trust precedents have routinely been found to be helpful but not binding authority in 
corporate cases. 
The Drafting Committee decided that by adopting language from both the RMNCA 
and UPIA, UPMIF A could clarify that common standards of prudent investing apply to 
all charitable institutions. 
Although the principal trust authorities, UPIA § (2)(a), 
Restatement (Third) of Trusts §337, UTC § 804, and Restatement (Second) of Trusts § 
(prudent administration) use the phrase "care, skill and caution," the Drafting 
Committee decided to use the more familiar corporate formulation as found in RMNCA 
The standard also appears in Sections 3, 4 and 5 of UPMIF Arhe Drafting Committee 
does not intend any substantive change to the UPIA standard and believes that 
"reasonable care, skill, and caution" are implicit in the term "care" as used in the 
RMNCA The Drafting Committee included the detailed provisions from UPIA, because 
the Committee believed that the greater precision of the prudence norms of the 
Restatement and UPIA, as compared with UMIF A, could helpfully inform managers of 
charitable institutions. For an explanation of the Prudent illvestor Act, see John H. 
Langbein, The Uniform Prudent Investor Act and the Future of Trust!nvesting, 81 Iowa 
L. Rev. 641 (1996), and for a discussion of the effect UPIA has had on investment 
decision making, see Max M. Schanzenbach & Robert H. Sitkoff, Did Reform of Prudent 
Trust Investment Laws Change Trust Portfolio Allocation?, 50 J. L. & Econ. 
(forthcoming 2007). 
Section 3 has incorporated the provisions of UPIA with only a few exceptions. UPIA 
applies to private trusts and is entirely default law. The settlor of a private trust has 
complete control over virtually all trust provisions. See UTC § 105. Because UPMIFA 
applies to charitable organizations, UPMIFA makes the duty of care, the duty to 
minimize costs, and the duty to investigate mandatory. The duty of loyalty is mandatory 
under applicable organization law, corporate or trust. 
Other than these duties, the 
provisions of Section 3 are default rules. A gift instrument or the governing instruments 
of an institution can modify these duties, but the charitable purpose doctrine limits the 
extent to which an institution or a donor can restrict these duties. ill addition, subsection 
(a) of Section 3 reminds the decision maker that the intent of a donor expressed in a gift 
instrument will control decision making. Further, the decision maker must consider the 
charitable purposes of the institution and the purposes of the institutional fund for which 
decisions are being made. These factors are specific to charitable organizations; UPIA § 
2(a) states the duty to consider similar factors in the private trust context. 
UPMIF A does not include the duty of impartiality, stated in UPIA § 6, because 
nonprofit corporations do not confront the multiple beneficiaries problem to which the 
duty is addressed. Under UPIA, a trustee must treat the current beneficiaries and the 
remainder beneficiaries with due regard to their respective interests, subject to alternative 
direction from the trust document. A nonprofit corporation typically creates one charity. 
The institution may serve mUltiple beneficiaries, but those beneficiaries do not have 
enforceable rights in the institution in the same way that beneficiaries of a private trust 
do. Of course, if a charitable trust is created to benefit more than one charity, rather than 
being created to carry out a charitable purpose, then UPIA will apply the duty of 
impartiality to that trust. 
In other respects, the Drafting Committee made changes to language from UPIA only 
where necessary to adapt the language for charitable institutions. No material differences 
are intended. Subsection (e)(1)(D) of Section 3 of UPMIFA does not include a clause 
that appears at the end ofUPIA § 2(c)(4) ("which may include financial assets, interest in 
closely held enterprises, tangible and intangible personal property, and real property."). 
The Drafting Committee deemed this clause unnecessary for charitable institutions. The 
language of subsection (e)(l)(G) reflects a modification of the language of UPIA § 
(2)(c)(7). Other minor modifications to the UPIA provisions make the language more 
appropriate for charitable institutions. 
The duties imposed by this section apply to those who govern an institution, 
including directors and trustees, and to those to whom the directors or managers delegate 
responsibility for investment and management of institutional funds. 
The standard 
applies to officers and employees of an institution and to agents who invest and manage 
institutional funds. Volunteers who work with an institution will be subject to the duties 
imposed here, but state and federal statutes may provide reduced liability for persons who 
act without compensation. UPMIF A does not affect the application of those shield 
statutes.)· 
Subsection (a). Donor Intent and Charitable Purposes. Subsection (a) states the 
overarching duty to comply with donor intent as expressed in the terms of the gift 
instrument. The emphasis in the Act on giving effect to donor intent does not mean that 
the donor can or should control the management ,of the institution. 
The other 
fundamental duty is the duty to consider the charitable purposes of the institution and of 
the institutional fund in mak!ng management and investment decisions. UPIA § 2(a) 
states a similar duty to consider the purposes of a trust in investing and managing assets 
of a trust. 
Subsection (b). Duty of Loyalty. Subsection (b) reminds those managing and 
investing institutional funds that the duty of loyalty will apply to their actions, but Section 
does not state the loyalty standard that applies. 
The Drafting Committee was 
concerned, at least nominally, that different standards of loyalty may apply to directors of 
nonprofit corporations and to trustees of charitable trusts. The RMNCA provides that 
under the duty of loyalty a director of a nonprofit corporation should act "in a manner the 
director reasonably believes to be in the best interests of the corporation." RMNCA § 
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8.30. The trust law articulation of the loyalty standard uses "sole interests" rather than 
"best interests." As the Restatement of Trusts explains, "[t]he trustee is under a duty to 
the beneficiary to administer the trust solely in the interest of the beneficiary." 
Restatement (Second) of Trusts § 170 (1). Although the standards for loyalty, like the 
standard of care, are merging, see Evelyn Brody, Charitable Governance: What's Trust 
Law Got to do With It? ChL .. Kent L. Rev. (2005); John H. Langbein, Questioning the 
Trust Law Duty of Loyalty: Sole Interest or Best Interest, 114 Yale L.J. 929 (2005), the 
Drafting Committee concluded that formulating a duty of loyalty provision for UPMIF A 
was unnecessary. Thus the duty of loyalty under nonprofit corporation law will apply to 
charities organized as nonprofit corporations, and the duty of loyalty under trust law will 
apply to charitable trusts. 
Sub§ection (b). Dut-I of Care. Subsection (b) also applies the duty of care to 
performance of investment duties. The language derives from § 8.30 of the RMNCA. 
This subsection states the duty to act in good faith, "with the care an ordinarily prudent 
person in a like position would exercise under similar circumstances." Although the 
language in the RMNCA and in UPMIFA is similar to that of § 8.30 of the Model 
Business Corporation Act (3d ed. 2002), the standard as applied to persons making 
decisions for charities is informed by the fact that the institution is a charity and not a 
business corporation. Thus, in UPMIF A the references to "like position" and "similar 
circumstances" mean that the charitable nature of the institution affects the decision 
making of a prudent person acting under the standard set forth in subsection (b). The 
duty of care involves considering the factors set forth in subsection (e)(1). 
Subsection (c)(l). Duty to Minimize Costs. Subsection (c)(I) tracks the language of 
UPIA § 7 and requires an institution to minimize costs. An institution may prudently 
incur costs by hiring an investment advisor, but the costs incurred should be appropriate 
under the circumstances. See UPIA § 7 cmt; Restatement (Third) of Trusts: Prudent 
Investor Rule § 227, cmt. M, at 58 (1992); Restatement (Second) of Trusts § 188 (1959). 
The duty is consistent with the duty to act prudently under § 8.30 of the RMNCA. 
Subsection (c)(2). Duty to Investigate. This subsection incorporates the traditional 
fiduciary duty to investigate, using language from UPIA § 2(d). The subsection requires 
persons who make investment and management decisions to investigate the accuracy of 
the information used in making decisions. 
Subsection (d). Pooling Funds. An institution holding more than one institutional 
fund may find that pooling its funds for investment and management purposes will be 
economically beneficial. The Act permits pooling for these purposes. The prohibition 
against commingling no longer prevents pooling funds for investment and management 
purposes. See UPIA § 3, cmt. (duty to diversify aided by pooling); UPIA § 7, cmt. 
(pooling to minimize costs); Restatement (Third) of Trusts: Duty to Segregate and 
Identify Trust Property § 84 (T.D. No.4 2005). Funds will be considered individually for 
other purposes of the Act, including for the spending rule for endowment funds of 
Section 4 and the modification rules of Section 6. 
Subsection (e)(l). Prudent Decision Making. Subsection (e)(1) takes much of its 
language from UPIA § 2(c). In making decisions about whether to acquire or retain an 
asset, the institution should consider the institution's mission, its current programs, and 
the desire to cultivate additional donations from a donor, in addition to factors related 
more directly to the asset's potential as an investment. 
Subsection (e)(1)(C) reflects the fact that some organizations will invest in taxable 
investments that may generate unrelated business taxable income for income tax 
purposes. 
Assets held primarily for program-related purposes are not subject to UPMIFA. The 
management of those assets will continue to be governed by other laws applicable to the 
institution. Other assets may not be held primarily for program-related purposes but may 
have both investment purposes and program-related purposes. Subsections (a) and 
(e)(1)(H) indicate that a prudent decision maker can take into consideration the 
relationship between an investment and the purposes of the institution and of the 
institutional fund in making an investment that may have a program-related purpose but 
not be primarily program-related. The degree to which an institution uses an asset to 
accomplish a charitable purpose will affect the weight given that factor in a decision to 
acquire or retain the asset. 
Subsection (e )(2). Portfolio Approach. This subsection reflects the use of portfolio 
theory in modem investment practice. The ·language comes from UPIA § 2(b), which 
follows the articulation of the prudent investor standard in Restatement (Third) of Trusts: 
Prudent Investor Rule § 227(a) (1992). 
Subsection (e)(3). Broad Investment Authority. Consistent with the portfolio theory 
of investment, this subsection permits a broad range of investments. 
The language 
derives from UPIA § 2(e). 
Section 4 of UMIF A indicated that an institution could invest "without restriction to 
investments a fiduciary may make." 
The committee removed this language from 
subsection (e )(3) as unnecessary, because states no longer have legal lists restricting 
fiduciary investing to the specific types of investments identified in statutory lists. 
Subsection (e)(3) also provides that other law may limit the authority under this 
subsection. In addition, all of subsection (e) is subject to contrary provisions in a gift 
instrument, and a gift instrument may restrict the ability to invest in particular assets. For 
example, the gift instrument for a particular institutional fund might preclude the 
institution from investing the assets of the fund in companies that produce tobacco 
products. 
In her book, Governing Nonprofit Organizations: Federal and State Law and 
Regulation 434 (Harv. Dniv. Press 2004), Marion R. Fremont-Smith reports that some 
large charities pledge their endowment funds as security for loans. Subsection (e)(3) 
permits this sort of debt financing, subject to the guidelines of subsection (e)(1). 
Subsection (e)(4). Duty to Diversify. This subsection assumes that prudence 
requires diversification but permits an institution to determine that nondiversification is 
appropriate under exceptional circumstances. A decision not to diversify must be based 
on the needs of the charity and not solely for the benefit of a donor. A decision to retain 
property in the hope of obtaining additional contributions from the same donor may be 
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considered made for the benefit of the charity, but the appropriateness of that decision 
will depend on the circumstances. This subsection derives its language from UPIA § 3. 
See UPIA § 3 cmt. (discussing the rationale for diversification); Restatement (Third) of 
Trusts: Prudent llvestor Rule § 227 (1992). 
Subsection (e)(5). Disposing of Unsuitable Assets. This subsection imposes a duty 
on an institution to review the suitability of retaining property contributed to the 
institution within a reasonable period of time after the institution receives the property. 
Subsection (e)(5) requires the institution to make a decision but does not require a 
particular outcome. The institution may consider a variety of factors in making its 
decision, and a decision to retain the property either for a period of time or indefinitely 
may be a prudent decision. 
Section 4(2) of UMIF A specifically authorized an institution to retain property 
contributed by a donor. The comment explained that an institution might retain property 
in the hope of obtaining additional contributions from the donor. Under UPMIFA the 
potential for developing additional contributions by retaining property contributed to the 
institution would be among the "other circumstances" that the institution might consider 
in deciding whether to retain or dispose of the property. The institution must weigh the 
potential for obtaining additional contributions with all other factors that affect the 
suitability of retaining the property in the investment portfolio. 
The language of subsection (e)(5) comes from UPIA § 4, which restates Restatement 
(Third) of Trusts: Prudent llvestor Rule § 229 (1992), which adopted language from 
Restatement (Second) of Trusts § 231 (1959). See UPIA § 4 cmt. 
Subsection (e)( 6). Special Skills or Expertise. Subsection (e)( 6) states the rule 
provided in UPIA § 2(t) requiring a trustee to use the trustee's own skills and expertise in 
carrying out the trustee's fiduciary duties. The comment to RMNCA § 8.30 describes the 
existence of a similar rule under the law of nonprofit corporations. Section 8.30(a)(2) 
provides that in discharging duties a director must act "with the care an ordinarily prudent 
person in a like position would exercise under similar circumstances .... " The comment 
explains that"[tJhe concept of 'under similar circumstances' relates not only to the 
circumstances of the corporation but to the special background, qualifications, and 
management experience of the individual director and the role the director plays in the 
corporation." After describing directors chosen for their ability to raise money, the 
comment notes that "[nJo special skill or expertise should be expected from such 
directors unless their background or knowledge evidences some special ability." 
The intent of subsection (e)(6) is that a person managing or investing institutional 
funds must use the person's ownjudgment and experience, including any particular skills 
or expertise, in carrying out the management or investment duties. For example, if a 
charity names a person as a director in part because the person is a lawyer, the lawyer's 
background may allow the lawyer to recognize legal issues in connection with funds held 
by the charity. The lawyer should identify the issues for the board, but the lawyer is not 
expected to provide legal advice. A lawyer is not expected to be able to recognize every 
legal issue, particularly issues outside the lawyer's area of expertise, simply because the 
board member is lawyer. See ALI Principles of the Law of Nonprofit Organizations, 
Preliminary Draft No.3 (May 12, 2005) § 315 (Duty of Care), cmt. c. 
UMIF A contained two provisions that authorized investments in pooled or common 
investment funds. UMIFA §§ 4(3), 4(4). The Drafting Committee concluded that Section 
3(e)(3) of UPMIFA authorizes these investments. The decision not to include the two 
provisions in UPMIF A implies no disapproval of such investments. 
§5104. Appropriation for. expenditure or accumulation of endowment fund; rules of 
construction 
1. Appropriate; accumulate; donor-restricted; good faith; care .. 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 detennines 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 detennination to appropriate or accumulate, the institution shall act in good 
faith, with the care that an ordinarily prudent person in a lilce position would exercise 
under similar circumstances, and shall consider, if relevant, the following factors: 
A. The duration and preservation of the endowment fund; 
B. The purposes of the institution and the endowment fund; 
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C. General economic conditions; 
D. The possible effect of inflation or deflation; 
E. The expected total return from income and the appreciation of investments; 
F. Other resources of the institution; and 
G. The investment policy of the institution. 
2. Limitation. To limit the authority to appropriate for expenditure or accumulate 
under subsection 1, a gift instrument must specifically state the limitation. 
3. Terms. 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: 
A. Create an endowment fund of permanent duration unless other language in the 
gift instrument limits the duration or purpose of the fund; and 
B. Do not otherwise limit the authority to appropriate for expenditure or accumulate 
under subsection 1. 
Uniform Comment 
(This is Section 4 of the Uniform Prudent Management of Institutional Funds Act 
(2006).) 
Purpose and Scope of Revisions. This section revises the provision in UMIF A that 
permitted the expenditure of appreciation of an endowment fund to the extent the fund 
had appreciated in value above the fund's historic dollar value. UMIFA defined historic 
dollar value to mean all contributions to the fund, valued at the time of contribution. 
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Instead of using historic dollar value as a limitation, UPMIFA applies a more carefully. 
articulated prudence standard to the process of making decisions about expenditures from 
an endowment fund. The expenditure rule of Section 4 applies only to the extent that a 
donor and an institution have not reached some other agreement about spending from an 
endowment. If a gift instrument sets forth specific requirements for spending, then the 
charity must comply with those requirements. However, if the gift instrument uses more 
general language, for example directing the charity to "hold the fund as an endowment" 
or "retain principal and spend income," then Section 4 provides a rule of construction to 
guide the charity. 
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Prior to the promulgation of UMIF A, "income" for trust accounting purposes meant 
interest and dividends but not capital gains, whether or not realized. Many institutions 
assumed that trust accounting principles applied to charities organized as nonprofit 
corporations, and the rules limited the institutions' ability to invest their endowment 
funds effectively. 
UMIF A addressed this problem by construing "income" in gift 
instruments to include a prudent amount of capital gains, both realized and unrealized. 
Under UMIF A an institution could spend appreciation in addition to spending income 
determined under trust accounting rules. 1bis rule of construction likely carried out the 
intent of the donor better than a rule limiting spending to trust accounting income, while 
permitting the charity to invest in a manner that could generate better returns for the fund. 
UPMIFA also applies a rule of construction to terms like "income" or "endowment." 
The assumption in the Act is that a donor who uses one of these terms intends to create a 
fund that will generate sufficient gains to be able to make ongoing distributions from the 
fund while at the same time preserving the purchasing power of the fund. Because 
historic dollar value under UMIF A was a number fixed in time, the use of that approach 
may not have adequately captured the intent of a donor who wanted the endowment fund 
to continue to maintain its value in current dollars. UPMIF A takes a different approach, 
directing the institution to determine spending based on the total assets of the endowment 
fund rather than determining spending by adding a prudent amount of appreciation to 
trust accounting income. 
UPMIF A requires the persons making spending decisions for an endowment fund to 
focus on the purposes of the endowment fund as opposed to the purposes of the 
institution more generally, as was the case under UMIFA. When the institution considers 
the purposes and duration of the fund, the institution will give priority to the donor's 
general intent that the fund be maintained permanently. Although the Act does not 
require that a specific amount be set aside as "principal," the Act assumes that the charity 
will act to preserve "principal" (i.e., to maintain the purchasing power of the amounts 
contributed to the fund) while spending "income" (i.e. making a distribution each year 
that represents a reasonable spending rate, given investment performance and general 
economic conditions). Thus, an institution should monitor principal in an accounting 
sense, identifying the original value of the fund (the historic dollar value) and the 
increases in value necessary to maintain the purchasing power of the fund. 
Subsection (a). 
Expenditure of Endowment Funds. 
Subsection (a) uses the 
RMNCA articulation of the standard of care for decision making under Section 4. The 
change in language does not reflect a substantive change. The comment to Section 3 
more fully describes that standard of care. 
Section 4 permits expenditures from an endowment fund to the extent the institution 
determines that the expenditures are prudent after considering the factors listed in 
subsection (a). These factors emphasize the importance of the intent of the donor, as 
expressed in a gift instrument. Section 4 looks to written documents as evidence of 
donor's intent and does not require an institution to rely on oral expressions of intent. By 
requiring written evidence of intent, the Act protects reliance by the donor and the 
institution on the written terms of a donative agreement. Informal conversations may be 
misremembered and may be subject to multiple interpretations. 
Of course, oral 
expressions of intent may guide an institution in further carrying out a donor's wishes and 
in understanding a donor's intent. 
The factors in subsection (a) require attention to the purposes of the institution and 
the endowment fund, economic conditions, and present and reasonably anticipated 
resources of the institution. As under UMIF A, determinations under Section 4 do not 
depend on the characterization of assets as income or principal and are not limited to the 
amount of income and unrealized appreciation. The authority in Section 4 is permissive, 
however, and an institution organized as a trust may continue to make spending decisions 
under trust accounting principles so long as doing so is prudent. 
Institutions have operated effectively under UMIF A and have operated more 
conservatively than the historic dollar value rule would have permitted. Institutions have 
little incentive to maximize allowable spending. Good practice has been to provide for 
modest expenditures while maintaining the purchasing power of a fund. Institutions have 
followed this practice even though UMIFA (1) does not require an institution to maintain 
a fund's purchasing power and (2) does allow an institution to spend any amounts in a 
fund above historic dollar value, subject to the prudence standard. 
The Drafting 
Committee concluded that eliminating historic dollar value and providing institutions 
with more discretion would not lead to depletion of endowment funds. Instead, UPMIF A 
should encourage institutions to establish a spending policy that will be responsive to 
short-term fluctuations in the value of the fund. Section 4 allows an institution to 
maintain appropriate levels of expenditures in times of economic downturn or economic 
strength. In some years, accumulation rather than spending will be prudent, and in other 
years an institution may appropriately make expenditures even if a fund has not generated 
investment return that year. 
Several levels of safeguard exist to prevent an institution from depleting an 
endowment fund or diverting assets from the purposes for which the fund was created. In 
comparison with UMIF A, UPMIF A provides greater direction to the institution with 
respect to making a prudent determination about spending from an endowment. UMIFA 
told the decision maker to consider "long and short term needs of the institution in 
carrying out its educational, religious, charitable, or other eleemosynary purposes, its 
present and anticipated fmancial requirements, expected total return on its investments, 
price level trends, and general economic conditions." UPMIFA clarifies that in making 
spending decisions the institution should attempt to ensure that the value of the fund 
endures while still providing that some amounts be spent for the purposes of the 
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endowment fund. 
In UPMIF A prudent decision making emphasizes the endowment 
aspect of the fund, rather than the overall purposes or needs of the institution. 
In addition to the guidance provided by Section 4, other safeguards exist. Donors can 
restrict gifts and can provide specific instructions to donee institutions regarding 
appropriate uses for assets contributed. Within institutions, fiduciary duties govern the 
persons making decisions on expenditures. Those persons must operate both with the best 
interests of the institution in mind and in keeping with the intent of donors. If an 
institution diverts an institutional fund from the charitable purposes of the institution, the 
state attorney general can enforce the charitable interests of the public. By relying on 
these safeguards while providing institutions with adequate discretion to make 
appropriate expenditures, the Act creates a standard that takes into consideration the 
diversity of the charitable sector. The committee expects that accwnulated experience 
with such spending formulas will continue to inform institutional practice under the Act. 
Distinguishing Legal and Accounting Standards. Deleting historic dollar value 
does not transform any portion of an endowment fund into unrestricted assets from a legal 
standpoint. An endowment fund is restricted because of the donor's intent that the fund 
be restricted by the prudent spending rule, that the fund not be spent in the current year, 
and that the fund continue to maintain its value for a long time. 
Regardless of the 
treatment of endowment fund from an accounting standpoint, legally an endowment fund 
should not be considered unrestricted. Subsection (a) states that endowment funds will be 
legally restricted until the institution appropriates funds for expenditure. The UMIF A 
statutes in Utah and Maine contain similar language. 13 Me. Rev. Stat. Ann. tit. 13 § 
4106 (West 2005); Utah Code Ann. 1953 § 13-29-3 (2005). 
See, also, advisory 
published by Mass. Attorney General, "The Attorney General's Position on F ASB 
Statement of Financial Accounting Standards No. 117, ~ 22 and Related G.L.C. 180A 
Issues" (January 2004) http://www.ago.state.ma.us/filelibrary/fasb.pdf (last visited May 
22,2006) (concerning the treatment of endowments as legally restricted assets). 
The term "endowment fund" includes funds that may last in perpetuity but also funds 
that are created to lastfor a fixed term of years or until the institution achieves a specified 
objective. Section 4 requires the institution to consider the intended duration of the fund 
in making determinations about spending. For example, if a donor directs that a fund be 
spent over 20 years, Section 4 will guide the institution in making distribution decisions. 
The institution would amortize the fund over 20 years rather than try to maintain the fund 
in perpetuity. For an endowment fund of limited duration, spending at a rate higher than 
rates typically used for endowment spending will be both necessary and prudent. 
Subsection (c). Rule of Construction. Donor's intent must be respected in the 
process of making decisions to expend endowment furids. Section 4 does not allow an 
institution to convert an endowment fund into a non-endowment fund nor does the 
section allow the institution to ignore a donor's intent that a fund be maintained as an 
endowment. Rather, subsection (c) provides rules of construction to assist institutions in 
interpreting donor's intent. Subsection (c) asswnes that if a donor wants an institution to 
spend "only the income" from a fund, the donor intends that the fund both support current 
expenditures and be preserved permanently. The donor is unlikely to be concerned about 
designation of particular returns as "income" or "principal" under accounting principles. 
Rather the donor is more likely to assume that the institution will use modem total-return 
investing techniques to generate enough funds to distribute while maintaining the long-
term viability of the fund. Subsection (c) is an intent effectuating provision that provides 
default rules to construe donor's intent. 
As subsection (b) explains, a donor who wants to specify particular spending 
guidelines can do so. For example, a donor might require that a charity spend between 
three and five percent of an endowed gift each year, regardless of investment 
performance or other factors. Because the charity agrees to the restriction in accepting 
the gift, the restriction will govern spending decisions by the charity. Another donor 
might want to limit expenditures to trust accounting income and not want the institution 
to be able to expend appreciation. An instruction to "pay only the income" will not be 
specific enough, but an instruction to "pay only interest and dividend income earned by 
the fund and not to make other distributions of the kind authorized by Section 4 of 
UPMIF A" should be sufficient. If a donor indicates that the rules on investing or 
expenditures under Section 4 do not apply to a particular fund, then as a practical matter 
the institution will probably invest the fund separately. Thus, a decision by a donor to 
require fund specific expenditure rules will likely also have consequences in the way the 
institution invests the fund. 
Retroactive Application of the Rule of Construction. 
A constructional rule 
resolves an ambiguity, in this case, because donors use words like endowment or income 
without specific directions regarding the intended meaning. 
Changing a statutory 
constructional rule does not change the underlying intent, and instead changes the wayan 
ambiguity is resolved, in an attempt to increase the likelihood of giving effect to the 
intent of most donors. 
If a donor has stated in a gift instrument specific directions as to spending, then the 
institution must respect those wishes, but many donors do not give precise instructions 
about how to spend endowment funds. In Section 4 UPMIFA provides guidance for 
giving effect to a donor's intent when the donor has not been specific. Like Section 3 of 
UMIF A, Section 4 of UPMIF A is a rule of construction, so it does not violate either 
donor intent or the Constitution. 
The issue of whether to apply a rule of construction retroactively was considered in 
cOlll1ection with UMIFA. When the New Hampshire legislature considered UMIFA, the 
Senate asked the New Hampshire Supreme Court for an opinion regarding whether 
UMIF A, if adopted, would violate a provision of the state constitution prohibiting 
retrospective laws, and also whether the statute would encroach on the functions of the 
judicial branch. The opinion answered no to both questions. Opinion of the Justices, 
Request of the Senate No. 6667, 113 N.H. 287, 306 A.2d 55 (1973). 
More recently the Colorado Supreme Court considered the retroactive application of 
another constructional statute, one that deems the designation of a spouse as the 
beneficiary of a life insurance policy to be revoked in a case in which the marriage was 
dissolved after the naming of the spouse as beneficiary. In re Estate of DeWitt, 54 P. 3d 
(Colo. 2002). In holding that retroactive application of the statute did not violate the 
Contracts Clause, the court cited approvingly from a statement prepared by the Joint 
Editorial Board for Uniform Trusts and Estates Acts (JEB). JEB Statement Regarding the 
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Constitutionality of Changes in Default Rules as Applied to PreExisting Documents, 17 
Am. ColI. Tr. & Est. Couns. Notes 184 app. II (1991). 
. 
The JEB Statement explains that the purpose of the anti-retroactivity norm is to 
protect a transferor who relies on existing rules of law. By defInition, however, rules of 
construction apply only in ,situations in which a transferor did not spell out his or her 
intent and hence did not rely on the then-current rule of construction. 
See also In re 
Gardner's Trust, 266 Minn. 127, 132, 123 N.W. 2d 69, 73 (1963) ("[I]t is doubtful 
whether the testatrix had any clear intention in mind at the time the will was executed. It 
is equally plausible that if she had thought about it at all she would have desired to have 
0 
the dividends go where the law required them to go at the time they were received by the 
trustee.") (Uniform Principal and Income Act). 
Non-retroactivity would produce serious practical problems: If the Act were not 
retroactive, a charity would need to keep two sets of books for each endowment fund 
created before the enactment of UPMIF A, if new funds were added after the enactment. 
The burden that such a rule would impose is out of proportion to the benefIt sought. 
Subsection (d). 
Rebuttable Presumption of Imprudence. 
The Drafting 
Committee debated at length whether to include a presumption of imprudence for 
spending above a fIxed percentage of the value of the fund. The Drafting Committee 
decided to include a presumption in the Act in brackets, as an option for states to 
consider, and to include in these Comments a discussion of the advantages and 
disadvantages of including a presumption in the Act. 
Some who commented on the Act viewed the presumption as linked to the retroactive 
application of the rule of construction of subsection (c). A donor who contributed to an 
endowment fund under UMIF A may have assumed that the historic dollar value of the 
gift would be subject to a no-spending rule under the statute. Because UPMIFA removes 
the concept of historic dollar value, the bracketed presumption of imprudence would 
assure the donor that spending from an endowment fund will be so limited. 
Those in favor of the presumption of imprudence argued that the presumption would 
curb the teinptation that a charity might have to spend endowment assets too rapidly. 
Although the presumption would be rebuttable, and spending above the identifIed 
percentage might, in some years and for some charities, be prudent, institutions would 
likely be reluctant to authorize spending above seven percent. 
In addition, the 
presumption would give the attorney general a benchmark of sorts. 
A variety of considerations cut against including a presumption of imprudence in the 
statute. A fIxed percentage in the statute might be perceived as a safe harbor that could 
lead institutions to spend more than is prudent. Although the provision should not be 
read to imply that spending below seven percent will be considered prudent, some 
charities might interpret the statute in that way. Decision makers might be pressured to 
spend up to the percentage, and in doing so spend more than is prudent, without adequate 
review of the prudence factors as required under the Act. 
Perhaps the biggest problem with including a presumption in the statute is the 
difficulty of picking a number that will be appropriate in view of the range of institutions 
and charitable purposes and the fact that economic conditions will change over time. 
Under recent economic conditions, a spending rate of seven percent is too high for most 
funds,. but in a period of high inflation, seven percent might be too low. In making a 
prudent decision regarding how much to spend from an endowment fund, each institution 
must consider a variety of factors, including the particular purposes of the fund, the 
wishes of the donors, changing economic factors, and whether the fund will receive 
future donations. 
Whether or not a statute includes the presumption, institutions must remember that 
prudence controls decision making. Each institution must make decisions on expenditures 
based on the circumstances of the particular charity. 
Application of Presumption. 
For a state wishing to adopt a presumption of 
imprudence, subsection (d) provides language. 
Under subsection (d), a rebuttable 
presumption of imprudence will arise if expenditures in one year exceed seven percent of 
the assets of an endowment fund. The subsection applies a rolling average of three or 
more years in determining the value of the fund for purposes of calculating the seven-
percent amount. An institution can rebut the presumption of imprudence if circumstances 
in a particular year make expenditures above that amount prudent. The concept and the 
language for the presumption of imprudence comes from Mass. Gen. L. ch. 180A, § 2 
(2004). Massachusetts enacted this rule in 1975 as part of its UMIFA statute. New 
Mexico adopted the same presumption in 1978. N.M.S.A. § 46-9-2 (C) (2004). New 
Hampshire has a similar provision. N.H. Rev. Stat. § 292-B:6. 
The period that a charity uses to calculate the presumption (three or more years) and 
the frequency of valuation (at least quarterly) will be binding in any determination of 
whether the presumption applies. For example, if a charity values an endowment fund on 
a quarterly basis and averages the quarterly values over three years to determine the fair 
market value of the fund for purposes calculating seven percent of the fund, the charity's 
choices of three years as a smoothing period and quarterly as a valuation period cannot be 
challenged. If the charity makes an appropriation that is less than seven percent of this 
value, then the presumption of imprudence does not arise even if the appropriation would 
exceed seven percent of the value of the fund calculated based on monthly valuations 
averaged over five years. 
If sufficient evidence establishes, by the preponderance of the evidence, the facts 
necessary to raise the presumption of imprudence, then the institution will have to carry 
the burden of production of (i.e., the burden of going forward with) other evidence that 
would tend to demonstrate that its decision was prudent. The existence of the 
presumption does not shift the burden of persuasion to the charity. 
7 
Expenditures from an endowment fund may include distributions for charitable 
8 
purposes and amounts used for the management and administration of the fund, including 
annual charges for fundraising. The value of a fund, as calculated for purposes of 
determining the seven percent amount, will reflect increases due to contributions and 
investment gains and decreases due to distributions and investment losses. The seven 
percent figure includes charges for fundraising and administrative expenses other than 
investment management expenses. All costs or fees associated with an endowment fund 
are factors that prudent decision makers consider. High costs or fees of investment 
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management could be considered imprudent regardless of whether spending exceeds 
seven percent of the fund's value. 
The presumption of imprudence does not create an automatic safe harbor. 
Expenditures at six percent might well be imprudently high. See James P. Garland, The 
Fecundity of Endowments and Long-Duration Trusts,The Journal of Portfolio 
Management (2005). Evidence reviewed by the Drafting Committee suggests that at 
present few funds can sustain spending at a rate above five percent. See Roger G. 
Ibbotson & Rex A. Sinquefield, Stocks, Bonds, Bills, apd Inflation: Historical Returns 
(1926-1987) (Research Foundation of the Institute of Chartered Financial Analysts, 
1989). Indeed, under current conditions five percent can be too high. See Joel C. Dobris, 
Why Five? The Strange, Magnetic, and Mesmerizing Affect of the Five Percent Unitrust 
and Spending Rate on Settiors, Their Advisers, and Retirees, 40 Real Prop. Prob. & Tr. J. 
(2005). 
Further, spending at a lower rate, particularly in the early years of an 
endowment, may result in greater distributions over time. See DeMarche Associates, Inc, 
Spending Policies and Investment Planning for Foundations: A Structure for Determining 
a Foundation's Asset Mix (Council on Foundations: 3d ed. 1999). A presumption of 
imprudence can serve as a reminder that spending at too high a rate will jeopardize the 
. 18 
long-term nature of an endowment fund. If an endowment fund is intended to continue 
permanently, the institution should take special care to limit annual spending to a level 
that protects the purchasing power of the fund. 
Subsection (d) provides that the terms of the gift instrument can provide additional 
spending authority. For 'example, if a gift instrument directs that an institution expend a 
fund over a ten-year period, exhausting the fund after ten years, spending at a rate higher 
than seven percent will be necessary. 
Subsection (d) does not require an institution to spend a minimum amount each year. 
The prudence standard and the needs of the institution will supply sufficient guidance 
regarding whether to accumulate rather than to spend in a particular year. 
Spending above seven percent in anyone year will not necessarily be imprudent. For 
some endowment funds fluctuating spending rates may be appropriate. Although the Act 
does not apply the percentage for the presumption on a rolling basis (e.g., 21 percent over 
three 'years), some endowment funds may prudently spend little or nothing in some years 
and more than seven percent in other years. 
For example, a charity planning a 
construction project might decide to spend nothing from an endowment for three years 
and then in the fourth year might spend 20 percent of the value of the fund for 
construction costs. The decision to accumulate in years one through three and then to 
spend 20 percent in the fourth year might be prudent for the charity, depending on the 
other factors. The charity should maintain adequate records during the accumulation 
period and should document the decision-making process in the fourth year to be able to 
meet the burden of production associated with the presumption. Another charity might 
prudently spend 20 percent in year one and nothing for the following three years. That 
charity would also need to document the decision-making process through which the 
decision to spend occurred and maintain records explaining why the decision was prudent 
under the circumstances. 
A charity might establish a "capital replacement fund" designed to provide funds to 
the institution for repair or replacement of major items of equipment. Disbursements 
from such a fund will likely fluctuate, with limited expenditures in some years and big 
expenditures in others. The fund would not exhibit a uniform spending rate. Indeed, an 
advantage of a capital replacement fund is the ability to absorb a significant capital 
expenditure in a single year without a negative impact on the operating budget of the 
institution. Disbursements might average five percent per year but would vary, with 
spending in some years more and in some years less. Even if this fund is an endowment 
fund subject to Section 4, spending above seven percent in a particular year could well be 
prudent. Subsection (d) does not preclude spending above seven percent. 
A charity creating a capital replacement fund or a building fund might chose to adopt 
spending rules for the fund that would not be subject to UPMIFA. Specific donor intent 
can supersede the rules of UPMIF A. 
If the charity creates a gift instrument that 
establishes appropriate rules on spending for the fund, and if donors agree to those 
restrictions, then the UPMIFA rules on spending, including the bracketed presumption, 
will not apply. 
Institutions with Limited Investment and Spending Experience. 
Several 
attorneys general and other charity officials raised concerns about whether small 
institutions would be able to adjust to a spending rule based solely on prudence, without 
the bright-line guidance of historic dollar value. Some charity regulators who spoke with 
the Drafting Committee noted that large institutions have sophisticated investment 
strategies, access to good investment advisors, and experience with spending rules that 
maintain purchasing power for endowment funds. For these institutions, the rules of 
UPMIF A should work well. 
For smaller institutions, however, the state regulators 
thought that additional guidance could be helpful. After discussing strategies to address 
this concern; the Drafting Committee decided to include in these comments an additional 
optional provision that a state could choose to include in its UPMIF A statute. 
The optional provision focuses on institutions with endowment funds valued, in the 
aggregate, at less than $2,000,000. The number is in brackets to indicate that it could be 
set higher or lower. The number was chosen to address the concern of the state regulators 
·31 
that some small charities might be more likely to spend imprudently than large charities. 
The Drafting Committee selected $2,000,000 as the value that might include most 
unsophisticated institutions but would not be overlnclusive. 
The optional provision creates a notification requirement for an institution with a 
small endowment that plans to spend below historic dollar value. If an institution subject 
to the provision decides to appropriate an amount that would cause the value of its 
endowment funds to drop below the aggregate historic dollar value for all of its 
endowment funds, then the institution will have to notify the attorney general before 
proceeding with the expenditure. The provision does not require that the institution 
obtain the approval of the attorney general before making the distribution. Rather, the 
notification requirement gives the attorney general the opportunity to take a closer look at 
the institution and its spending decision, to educate the institution on prudent decision 
making for endowment funds, and to intervene if the attorney general determines that the 
spending would be imprudent for the institution. 
Although the Drafting Committee 
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thinks that the prudence standard in UPMIF A provides adequate guidance to all 
institutions within the scope of the Act, if a state chooses to adopt a notification provision 
for institutions with small endowments, the Drafting Committee recommends the 
following language: 
(-) If an institution has endowment funds with an aggregate value of less than 
[$2,000,000], the institution shall notify the [Attorney General] at least [60 days] 
prior to an appropriation for expenditure of an amount that would cause the value of 
the institution's endowment funds to fall below the aggregate historic dollar value of 
the institution's endowment funds, unless the expenditure is pennitted or required 
under law other than this [act] or in the gift instrument. 
For purposes of this 
subsection, "historic dollar value" means the aggregate value in dollars of (i) each 
endowment fund at the time it became an endowment fund, (ii) each subsequent 
donation to the fund at the time the donation is made, and (iii) each accumulation 
made pursuant to a direction in the applicable gift instrument at the time the 
accumulation is added to the fund. The institution's detennination of historic dollar 
value made in good faith is conclusive. 
§5105. Delegation of management and investment functions 
1. Delegation. Subject to any specific limitation set forth in a gift instrument or in 
law other than this chapter, an institution may delegate to an external agent the 
management and investment of an institutional fund to the extent that an institution could 
prudently delegate under the circumstances. An institution shall act in good faith, with the 
care that an ordinarily prudent person in a like position would exercise under similar 
circumstances, in: 
A. Selecting an agent; 
B. Establishing the scope and terms ofthe delegation, consistent with the purposes of . 
the institution and the institutional fund; and 
C. 
Periodically reviewing the agent's actions in order to. monitor the agent's 
performance and compliance with the scope and terms of the delegation. 
2. Agent's duty. In performing a delegated function, an agent owes a duty to the 
institution to exercise reasonable care to comply with the scope and terms of the 
delegation. 
3. Liability of institution. An institution that complies with subsection 1 is not 
liable for the decisions or actions of an agent to which the function was delegated. 
4. Submits to jurisdiction. By accepting delegation of a management or investment 
function from an institution that is subject to the laws of this State, an agent submits to 
the jurisdiction of the courts of this State in all proceedings arising from or related to the 
delegation or the performance of the delegated function. 
5. Committees; officers; employees. An institution may delegate management and 
investment functions to its committees, officers or employees as authorized by the laws of 
this State other than provisions of this chapter. 
Uniform Comment 
(This is Section 5 of the Uniform Prudent Management of Institutional Funds Act 
(2006).) 
The prudent investor standard in Section 4 presupposes the power to delegate. For 
some types of investment, prudence requires diversification, and diversification may best 
be accomplished through the use of pooled investment vehicles that entail delegation. 
The Drafting Committee decided to put Section 5 in brackets because many states already 
provide sufficient authority to delegate authority through other statUtes. If such authority 
exists, then an enacting state should enact UPMIFA without Section 5. 
Enacting 
delegation rules that duplicate existing rules could be confusing and might create 
conflicts. For charitable trusts, UPIA provides the same delegation rules as those in 
Section 5. 
For nonprofit corporations, nonprofit corporation statutes often provide 
comparable rules. A state enacting UPMIF A must be certain that its laws authorize 
delegation, either through other statutes or by enacting Section 5. 
Section 5 incorporates the delegation rule found in UPIA § 9, updating the delegation 
rules in UMIFA § 5. Section 5 pennits the decision makers in an institution to delegate 
management and investment functions to external agents if the decision makers exercise 
reasonable skill, care, and caution in selecting the agent, defining the scope of the 
delegation and reviewing the performance of the agent. In some circumstances, the scope 
of the delegation may include redelegation. For example, an institution may select an 
investment manager to assist with investment decisions. The delegation may include the 
authority to redelegate to investment managers with expertise in particular investment 
areas. All decisions to delegate require the exercise of reasonable care, skill, and caution 
in selecting, instructing, and monitoring agents. Further, decision makers cannot delegate 
the authority to make decisions concerning expenditures and can only delegate 
management and investment functions. Subsection (c) protects decision makers who 
comply with the requirement for proper delegation from liability for actions or decisions 
of the agents. In making decisions concerning delegation, the institution must be mindful 
of Section 3(c)(I) of UPMIFA, the provision that directs the institution to incur only 
reasonable costs in managing and investing an institutional fund. 
Section 5 does not address issues of internal delegation and potential liability for 
internal delegation, and subsection (c) does not affect laws that govern personal liability 
of directors or trustees for matters outside the scope of Section 5. Directors will look to 
nonprofit corporation laws for these rules, while trustees will look to trust law. See, e.g., 
RMNCA, § 8.30(b) (pennitting directors to rely on information prepared by an officer or 
employee of the institution if the director reasonably believes the officer or employee to 
be reliable and competent in the matters presented). 
The language of subsection (c) is similar to that of UPIA § 9(c) and RMNCA § 
8.30(d). 
The decision not to include the terms ''beneficiaries'' or "members" in 
subsection (c) does not indicate a decision that this section does not create immunity from 
claims brought by beneficiaries or members. Instead, a decision maker who complies 
with section 5 will be protected from any liability resulting from actions or decisions 
made by an external agent. 
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Subsection (d) creates personal jurisdiction over the agent. This subsection is not a 
choice of law rule. 
Subsection ( e) notes that law other than this Act governs internal delegation. Section 
ofUMIFA included internal delegation as well as external delegation, due to a concern 
at that time that trust law concepts might govern internal delegation in nonprofit 
corporations. With the widespread adoption of nonprofit corporation statutes, that 
concern no longer exists. The decision not to address internal delegation in UPMIF A does 
not suggest that a governing board of a nonprofit corporation cannot delegate to 
committees, officers, or employees. Rather, a nonprofit corporation must look to other 
law, typically a nonprofit corporation statute, for the rules governing internal delegation. 
§5106. 
Relea§e or modification of re§triction§ on management, inve§tment or 
purpose 
1. Release or modification of restriction with consent. If the donor consents in a 
record, an institution may release or modify, in whole or in part, a restriction contained in 
a gift instrument on the management, investment or purpose of an institutional fund. A 
release or modification may not allow a fund to be used for a purpose other than a 
charitable purpose of the institution. 
2. 
Modification of restriction by court. 
The court, upon application of an 
institution, may modify a restriction contained in a gift instrument regarding the 
management or investment of an institutional fund if the restriction has become 
impracticable or wasteful, if it impairs the management or investment of the fund or if, 
because of circumstances not anticipated by the donor, a modification of a restriction will 
further the purposes of the fund. The institution shall notify the Attorney General of the 
application and the Attorney General must be given an opportunity to be heard. To the 
extent practicable, any modification must be made in accordance with the donor's 
probable intention. 
3. Modification by court when unlawful, impracticable, impossible or wasteful 
restriction. 
If a particular charitable purpose or a restriction contained in a gift 
instrument on the use of an institutional fund becomes unlawful, impracticable, 
impossible to achieve or wasteful, the court, upon application of an institution, may 
modify the purpose of the fund or the restriction on the use of the fund in a manner 
consistent with the charitable purposes expressed in the gift instrument. The institution 
shall notify the Attorney General of the application and the Attorney General must be 
given an opportunity to be heard. 
4. 
Release or modification by institution. ·If an institution determines that a 
restriction contained in a gift instrument on the management, investment or purpose of an 
institutional fund is unlawful, impracticable, impossible to achieve or wasteful, the 
institution, 60 days after notification to the Attorney General, may release or modify the 
restriction, in whole or part, if: 
A. The institutional fund subject to the restriction has a total value of less than 
$100,000, except that the dollar limit established in this paragraph must be adjusted 
for inflation in accordance with the annual percentage change in the Consumer Price 
Index for all Urban Consumers, cpr-u, as compiled by the United States Department 
of Labor, Bureau of Labor Statistics, or its successor index, using 2007 as the base 
year. On or before January 1, 2010, and each even..:numbered year thereafter, the 
Attorney General shall calculate the adjusted dollar amount for the next 2-year cycle 
using inflation for the prior 2 calendar years as of the date of the calculation. The 
adjusted exemption must be rounded upward to the nearest $100 increment. The 
Attorney General shall certify the amount of the adjustment for the next 2-year cycle 
and shall publish the amount on the Attorney General's publicly accessible website; 
B. More than 20 years have elapsed since the fund was established; and 
C. 
The institution uses the property in a manner consistent with the charitable 
purposes expressed in the gift instrument. 
Uniform Comment 
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(This is Section 6 of the Uniform Prudent Management of Institutional Funds Act 
(2006).) 
Section 6 expands the rules on releasing or modifying restrictions that are found in 
Section 7 of UMIF A. Subsection (a) restates the rule from UMIF A allowing the release 
of a restriction with donor consent. Subsections (b) and ( c) make clear that an institution 
can always ask a court to apply equitable deviation or cy pres to modify or release a 
restriction, under appropriate circumstances. Subsection (d), a new provision, permits an 
institution to apply cy pres on its own for small funds that have existed for a substantial 
period of time, after giving notice to the state attorney general. 
Although UMIF A stated that it did not "limit the application of the doctrine of cy 
pres", UMIFA § 7(d), what that statement meant under the Act was unclear. UMIFA 
itself appeared to permit only a release of a restriction and not a modification. That all-
or-nothing approach did not adequately protect donor intent. 
See Yale Univ. v. 
Blumenthal, 621 A.2d l304 (Conn. 1993). By expressly including deviation and cy pres, 
UPMIF A requires an institution to seek modifications that are "in accordance with the 
donor's probable intention" for deviation and "in a manner consistent with the charitable 
purposes expressed in the gift instrument" for cy pres. 
Individual Funds. The rules on modification require that the institution, or a court 
applying a court-ordered doctrine, review each institutional fund separately. Although an 
institution may manage institutional funds collectively, for purposes of this Section each 
fund must be considered individually. 
Subsection (a). Donor Release. Subsection (a) permits the release of a restriction if 
the donor consents. A release with donor consent cannot change the charitable 
beneficiary of the fund. Although the donor has the power to consent to a release of a 
restriction, this section does not create a power in the donor that will cause a federal tax 
problem for the donor. The gift to the institution is a completed gift for tax purposes, the 
property cannot be diverted from the charitable beneficiary, and the donor cannot redirect 
the property to another use by the charity. The donor has no retained interest in the fund. 
Subsection (b). Equitable Deviation. Subsection (b) applies the rule of equitable 
deviation, adapting the language of UTC § 412 to this section. See also Restatement 
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(Third) of Trusts § 66 (2003). 
Under the deviation doctrine, a court may modify 
restrictions on the way an institution manages or administers a fund in a manner that 
furthers the purposes of the fund. Deviation implements the donor's intent. A donor 
commonly has a predominating purpose for a gift and, secondarily, an intent that the 
purpose be carried out in a particular manner. Deviation does not alter the purpose but 
rather modifies the means in order to carry out the purpose. 
Sometimes deviation is needed on account of circumstances unanticipated when the 
donor created the restriction. 
In other situations the restriction may impair the 
management or investment of the fund. Modification of the restriction may pennit the 
institution to carry out the donor's purposes in a more effective manner. A court applying 
deviation should attempt to follow the donor's probable intention in deciding how to 
modify the restriction. Consistent with the doctrine of equitable deviation in trust law, 
subsection (b) does not require an institution to notify donors of the proposed 
modification. Good practice dictates notifying any donors who are alive and can be 
located with a reasonable expenditure of time and money. Consistent with the doctrine of 
deviation under trust law, the institution must notify the attorney general who may choose 
to participate in the court proceeding. The attorney general protects donor intent as well 
as the public's interest in charitable assets. Attorney general is in brackets in the Act 
because in some states another official enforces the law of charities. 
Subsection (c). Cy Pres. Subsection (c) applies the rule of cy pres from trust law, 
authorizing the court to modify the purpose of an institutional fund. The term "modify" 
encompasses the release of a restriction as well as an alteration of a restriction and also 
pennits a court to order that the fund be paid to another institution. A court can apply the 
doctrine of cy pres only if the restriction in question has become unlawful, impracticable, 
impossible to achieve, or wasteful. This standard, which comes from UTC § 413, updates 
the circumstances under which cy pres may be applied by adding "wasteful" to the usual 
common law articulation of the doctrine. 
Any change must be made in a manner 
consistent with the charitable purposes expressed in the gift instrument. 
See also 
Restatement (Third) of Trusts § 67 (2003). Consistent with the doctrine of cy pres, 
subsection (c) does not require an institution seeking cy pres to notify donors. Good 
practice will be to notify donors whenever possible. As with deviation, the institution 
must notify the attorney general who must have the opportunity to be heard in the 
proceeding. 
Subsection (d). Modification of Small, Old Funds. Subsection (d) pennits an 
institution to release or modify a restriction according to cy pres principles but without 
court approval if the amount of the institutional fund involved is small and if the 
institutional fund has been in existence for more than 20 years. The rationale is that under 
some circumstances a restriction may no longer make sense but the cost of a judicial cy 
pres proceeding will be too great to warrant a change in the restriction. The Drafting 
Committee discussed at length the parameters for allowing an institution to apply cy pres 
without court supervision. The Committee drafted subsection (d) to balance the needs of 
an institution to serve its charitable purposes efficiently with the policy of enforcing 
donor intent. The Committee concluded that an institutional fund with a value of $25,000 
or less is sufficiently small that the cost of a judicial proceeding will be out of proportion 
to its protective purpose. The Committee included a requirement that the institutional 
fund be in existence at least 20 years, as a further safeguard for fidelity to donor intent. 
The 20-year period begins to run from the date of inception of the fund and not from the 
date of each gift to the fund. The amount and the number of years have been placed in 
brackets to signal to an enacting jurisdiction that it may wish to designate a higher or 
lower figure. Because the amount should reflect the cost of a judicial proceeding to 
obtain a modification, the number may be higher in some states and lower in others. 
As under judicial cy pres, an institution acting under subsection (d) must change the 
restriction in a manner that is in keeping with the intent of the donor and the purpose of 
the fund. For example, if the value of a fund is too small to justify the cost of 
administration of the fund as a separate fund, the term "wasteful" would allow the 
institution to combine the fund with another fund with similar purposes. If a fund has 
been created for nursing scholarships and the institution closes its nursing school, the 
institution might appropriately decide to use the fund for other scholarships at the 
institution. In using the authority granted under subsection (d), the institution must 
determine which alternative use for the fund reasonably approximates the original intent 
of the donor. The institution cannot divert the fund to an entirely different use. For 
example, the fund for nursing scholarships could not be used to build a football stadium. 
An institution seeking to modify a provision under subsection (d) must notify the 
attorney general of the planned modification. The institution must wait 60 days before 
proceeding; the attorney general may take action if the proposed modification appears 
inappropriate. 
Notice to Donors. The Drafting Committee decided not to require notification of 
donors under subsections (b), (c), and (d). The trust law rules of equitable deviation and 
cy pres do not require donor notification and instead depend on the court and the attorney 
general to protect donor intent and the public's interest in charitable assets. 
With regard to subsection (d), the Drafting Committee concluded that an institution 
should not be required to give notice to donors. Subsection (d) can only be used for an 
old and small fund. Locating a donor who contributed to the fund more than 20 years 
earlier may be difficult and expensive. If multiple donors each gave a small amount to 
create a fund 20 years earlier, the task of locating all of those donors would be harder 
still. The Drafting Committee concluded that an institution's concern for donor relations 
would serve as a sufficient incentive for notifying donors when donors can be located. 
§5107. Reviewing compliance 
Compliance with this chapter is determined in light of the facts and circumstances 
existing at the time a decision is made or action is taken and not by hindsight. 
§5108. Application to existing institutional funds 
This chapter applies to institutional funds existing on or established after July 1, 
2010. As applied to institutional funds existing on July 1,2010, this chapter governs only 
decisions made or actions taken on or after that date. 
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§5109. Relation to federal Electronic Signatures in Global and National Commerce 
Act 
This chapter modifies, limits and supersedes the federal Electronic Signatures in 
Global and National Commerce Act, 15 United States Code, Section 7001 et seq., but 
does not modify, limit or supersede 15 United States Code, Section 7001(a), or authorize 
electronic delivery of .any of the notices described in 15 United States Code, Section 
7003(b). 
§5110. Uniformity of application and construction 
In applying and construing this uniform Act, consideration must be given to the need 
to promote uniformitv of the law with respect to its subiect matter among states that enact 
it. 
§5111. Effective date 
This chapter takes effect July 1, 2010. 
SUMMARY 
This bill repeals the existing Uniform Management of Institutional Funds Act and 
replaces it with the Uniform Prudent Management of Institutional Funds Act adopted by 
the National Conference of Commissioners on Uniform State Laws in 2006. 
The 
Prefatory Note and Uniform Comments are included. 
This bill does not include the optional clause identifying 7% as the maximum level of 
"prudent spending." 
This bill increases the amount that defines a small fund for which an institution may 
release or modify a restriction according to cy pres principles but without court approval. 
The dollar limit is established at $100,000, but must be indexed to inflation by the 
Attorney General. Th:~ restriction may be released or modified only if the fund is at least 
years old and the institution uses the property in a manner consistent with the 
charitable purposes expressed in the gift instrument. 
This bill takes effect July 1, 2010.