NY Est Pow & Trusts L § 8-1.9 (2021)
2021 New York Laws EPT - Estates, Powers and Trusts Article 8 - Charitable Trusts Part 1 - Rules Governing Charitable Trusts 8-1.9 - Trust Governance

§ 8-1.9 Trust governance  (a) For purposes of this section:  (1) A "trust" means a trust created solely for charitable purposes, or a trust that continues solely for such purposes after all non-charitable interests have terminated.  (2)  "Charitable purpose" means any religious, charitable, educational or benevolent purpose.  (3) "Key person" means any person other than a trustee, whether or not an employee, who  (i)  has  responsibilities,  or  exercises  powers  of influence  over  the  trust  as a whole similar to the responsibilities, powers, or influence of trustees and officers; (ii) manages  the  trust, or  a  segment of the trust that represents a substantial portion of the activities, assets, income or expenses of the trust; or (iii)  alone  or with  others controls or determines a substantial portion of the trust's capital expenditures or operating budget.  (4) An "affiliate" of a trust means any entity controlled  by,  or  in control of, such trust.  (5)  "Relative"  of  an  individual  means  (i)  his  or her spouse or domestic partner as defined in section twenty-nine hundred ninety-four-a of the public health law;  (ii)  his  or  her  ancestors,  brothers  and sisters  (whether  whole  or  half  blood), children (whether natural or adopted), grandchildren, great-grandchildren; or  (iii)  the  spouse  or domestic   partner   of   his   or   her  brothers,  sisters,  children, grandchildren, and great-grandchildren.  (6) "Related party" means (i) any trustee or key person of  the  trust or  any  affiliate  of  the  trust;  (ii) any relative of any individual described in clause (i) of this subparagraph;  or  (iii)  an  entity  in which  any  individual  described  in  clauses  (i)  and  (ii)  of  this subparagraph  has  a  thirty-five  percent  or  greater   ownership   or beneficial  interest  or,  in  the case of a partnership or professional corporation, a direct ownership interest in excess of five percent.  (7) "Independent trustee" means a trustee who: (i) is not, and has not been within the last three  years,  an  employee  of  the  trust  or  an affiliate of the trust, and does not have a relative who is, or has been within  the  last three years, a key person of the trust or an affiliate of the trust; (ii) has not received, and does not have  a  relative  who has  received,  in  any  of  the  last three fiscal years, more than ten thousand dollars in direct compensation from the trust or  an  affiliate of  the  trust;  (iii)  is  not a current employee of or does not have a substantial financial interest in, and does not have a relative who is a current officer of or have a  substantial  financial  interest  in,  any entity  that has provided payments, property or services to, or received payments, property or services from, the trust or an  affiliate  of  the trust  if  the amount paid by the trust to the entity or received by the trust from the entity for such property or services, in any of the  last three  fiscal  years, exceeded the lesser of ten thousand dollars or two percent of such entity's consolidated  gross  revenue  if  the  entity's consolidated  gross revenue was less than five hundred thousand dollars; twenty-five thousand dollars if the entity's consolidated gross  revenue was  five  hundred  thousand  dollars  or more but less than ten million dollars; one hundred thousand dollars if the entity's consolidated gross revenue was ten million dollars or more; or (iv) is  not  and  does  not have  a  relative  who  is a current owner, whether wholly or partially, director, officer or employee of the trust's outside auditor or who  has worked on the trust's audit at any time during the past three years. For purposes  of  this  subparagraph,  the  terms:  "compensation"  does not include reimbursement for expenses or the payment of trustee commissions or reasonable  compensation  as  permitted  by  law  and  the  governing  instrument;  and  "payment"  does  not include charitable contributions, dues or fees paid to the trust for services which the trust performs  as part  of  its nonprofit purposes, or payments made by the trust at fixed or  non-negotiable rates or amounts for services received, provided that such services by and to the trust are available to individual members of the public on the same terms, and such services provided  to  the  trust are not available from another source.  (8)  "Related  party  transaction" means any transaction, agreement or any other arrangement in which a related party has a financial  interest and  in  which the trust or any affiliate of the trust is a participant, except that a transaction shall not be a related party  transaction  if: (i)  the  transaction  or  the related party's financial interest in the transaction is de minimis, (ii) the transaction would not customarily be reviewed by the board,  or  boards  of  similar  organizations,  in  the ordinary  course  of  business and is available to others on the same or similar terms, or (iii) the transaction constitutes a  benefit  provided to  a  related  party solely as a member of a class of the beneficiaries that the trust intends to benefit as part of the accomplishment  of  its mission  which benefit is available to all similarly situated members of the same class on the same terms.  (9)  "Independent  auditor"  means  any  certified  public  accountant performing  the audit of the financial statements of a trust required by subdivision one of section one hundred seventy-two-b  of  the  executive law.  (b)(1)  The trustees or a designated audit committee consisting of one or  more  independent  trustees  of  any  trust  required  to  file   an independent certified public accountant's audit report with the attorney general pursuant to subdivision one of section one hundred seventy-two-b of  the  executive  law  shall  oversee  the  accounting  and  financial reporting processes of the trust and the audit of the trust's  financial statements.  The  trustees  or designated audit committee shall annually retain or renew the retention of an independent auditor to  conduct  the audit  and, upon completion thereof, review the results of the audit and any related management letter with the independent auditor.  (2) The trustees or a designated audit committee consisting of one  or more  independent  trustees of any trust required to file an independent certified public accountant's audit report  with  the  attorney  general pursuant  to subdivision one of section one hundred seventy-two-b of the executive law and that in the prior fiscal year had or  in  the  current fiscal  year  reasonably expects to have annual revenue in excess of one million dollars  shall,  in  addition  to  those  duties  set  forth  in subparagraph one of this paragraph:  (A)  review with the independent auditor the scope and planning of the audit prior to the audit's commencement;  (B) upon  completion  of  the  audit,  review  and  discuss  with  the independent  auditor:  (i) any material risks and weaknesses in internal controls identified by the auditor; (ii) any restrictions on  the  scope of  the  auditor's  activities or access to requested information; (iii) any significant disagreements between the auditor  and  management;  and (iv)  the  adequacy  of  the  trust's accounting and financial reporting processes;  (C)  annually  consider  the  performance  and  independence  of   the independent auditor; and  (D)  if  the duties required by this section are performed by an audit committee, report on the committee's activities to the trustees.  (4) If a trust is under the control of another trust or a corporation, the trustees or designated audit committee of the controlling trust,  or  the  board or designated audit committee of the board of the controlling corporation, may perform the duties required by this paragraph.  (5)  Only  independent  trustees  may  participate in deliberations or voting relating to matters set forth  in  this  section,  provided  that nothing  in  this paragraph shall prohibit the board or designated audit committee from requesting that a person with an interest in  the  matter present  information as background or answer questions at a committee or board meeting prior to  the  commencement  of  deliberations  or  voting relating thereto.  (c)  (1)  Notwithstanding any provision of the trust instrument to the contrary, no trust shall enter into any related party transaction unless the  transaction  is  determined  by  the  trustees,  or  an  authorized committee  thereof,  to  be  fair,  reasonable  and  in the trust's best interest at the time of such determination. Any trustee, officer or  key employee  who  has  an  interest  in  a  related party transaction shall disclose in good faith to  the  trustees,  or  an  authorized  committee thereof, the material facts concerning such interest.  (2)  With  respect to any related party transaction in which a related party  has  a  substantial  financial  interest,  the  trustees,  or  an authorized committee thereof, shall:  (A)  Prior  to  entering  into  the  transaction, consider alternative transactions to the extent available;  (B) Approve the transaction by not less than a majority  vote  of  the trustees or committee members present at the meeting; and  (C)  Contemporaneously document in writing the basis for the trustees' or authorized  committee's  approval,  including  consideration  of  any alternative transactions.  (3)  The  trust  instrument,  by-laws  or  any  policy  adopted by the trustees  may  contain  additional   restrictions   on   related   party transactions  and  additional  procedures  necessary  for the review and approval of such  transactions,  or  provide  that  any  transaction  in violation of such restrictions shall be void or voidable.  (4)  The  attorney  general  may  bring  an  action to enjoin, void or rescind  any  related  party  transaction  or  proposed  related   party transaction that violates any provision of this article or was otherwise not  reasonable  or  in  the best interests of the trust at the time the transaction was approved, or to seek restitution,  and  the  removal  of trustees or officers, or seek to require any person or entity to:  (A)  Account  for any profits made from such transaction, and pay them to the trust;  (B) Pay the trust the value of the use of any of its property or other assets used in such transaction;  (C) Return or replace any property or other assets lost to  the  trust as   a   result  of  such  transaction,  together  with  any  income  or appreciation lost to the trust by reason of such transaction, or account for any proceeds of sale of such property, and pay the proceeds  to  the trust together with interest at the legal rate; and  (D)  Pay, in the case of willful and intentional conduct, an amount up to double the amount of any benefit improperly obtained.  (5) The powers of the attorney general provided in this section are in addition to all other powers the attorney general may  have  under  this chapter or any other law.  (6)  No  related  party  may  participate  in  deliberations or voting relating to a related party transaction  in  which  he  or  she  has  an interest;  provided  that  nothing  in  this  section shall prohibit the trustees or designated audit committee from requesting  that  a  related party present information or answer questions concerning a related party  transaction at a trustees or committee meeting prior to the commencement of deliberations or voting relating to the related party transaction.  (7)  In  an  action  by  any  person or entity other than the attorney general, it shall be a defense to a claim of violation of any provisions of this paragraph that a transaction was fair,  reasonable  and  in  the trust's best interest at the time the trust approved the transaction.  (8)  In  an  action  by the attorney general with respect to a related party transaction not approved in accordance with  subparagraph  one  or two  of  this  paragraph  at  the time it was entered into, whichever is applicable, it shall be a  defense  to  a  claim  of  violation  of  any provisions  of  this  paragraph  that  (i)  the  transaction  was  fair, reasonable and in the trust's  best  interest  at  the  time  the  trust approved  the  transaction  and (ii) prior to receipt of any request for information by the  attorney  general  regarding  the  transaction,  the trustees  have:  (A)  ratified  the transaction by finding in good faith that it was fair, reasonable and in the trust's  best  interest  at  the time  the  trustee  approved  the  transaction; and, with respect to any related party transaction involving  a  charitable  corporation  and  in which  a  related party has a substantial financial interest, considered alternative  transactions  to  the  extent  available,   approving   the transaction  by  not  less  than  a  majority  vote  of  the trustees or committee members present at the meeting; (B) documented in writing  the nature  of  the violation and the basis for the trustees' or committee's ratification of the transaction; and (C) put into  place  procedures  to ensure  that the trustee complies with subparagraphs one and two of this paragraph as to related party transactions in the future.  (d) (1) Except as provided in subparagraph  four  of  this  paragraph, every  trust  shall  adopt,  and  oversee  the  implementation  of,  and compliance with, a conflict  of  interest  policy  to  ensure  that  its trustees, officers and key persons act in the best interest of the trust and  its  beneficiaries  and  comply with applicable legal requirements, including but  not  limited  to  the  requirements  set  forth  in  this paragraph.  (2)  The  conflict of interest policy shall include, at a minimum, the following provisions:  (A) a definition of the circumstances that constitute  a  conflict  of interest;  (B)  procedures  for  disclosing  a  conflict  of interest or possible conflict of interest to the trustees or to a committee of the  trustees, and  procedures  for  the  trustees  or committee to determine whether a conflict exists;  (C) a requirement that the person with the conflict of interest not be present at or participate in any deliberation  or  vote  on  the  matter giving  rise  to  such  conflict,  provided that nothing in this section shall prohibit the trustees or a  committee  from  requesting  that  the person  with  the conflict of interest present information as background or answer questions at a trustees or  committee  meeting  prior  to  the commencement of deliberations or voting relating thereto;  (D)  a prohibition against any attempt by the person with the conflict to influence the deliberation or voting on the  matter  giving  rise  to such conflict;  (E) a requirement that the existence and resolution of the conflict be documented  in  the  trust's  records,  including  in the minutes of any meeting at which the conflict was discussed or voted upon; and  (F) procedures for disclosing,  addressing,  and  documenting  related party transactions in accordance with this paragraph.  (3)  The  conflict  of  interest  policy shall require that prior to a trustee's initial appointment, and  annually  thereafter,  such  trustee  shall  complete,  sign  and file with the records of the trust a written statement identifying any entity of which  he  or  she  is  an  officer, director,  trustee,  member,  owner  (either  as  a sole proprietor or a partner),  or  employee and with which the trust has a relationship, and any transaction in which the trust is a participant  and  in  which  the trustee might have a conflicting interest. The policy shall require that each  trustee  annually  resubmit  such  written statement. The trustees shall provide a copy of all completed statements to  the  chair  of  the audit committee, if there is an audit committee.  (4)  A  trust  that  has  adopted and possesses a conflict of interest policy pursuant to federal, state or local laws  that  is  substantially consistent  with  the  provisions  of subparagraph two of this paragraph shall be deemed in compliance with provisions of this paragraph.  (5) Nothing in this paragraph shall be interpreted to require a  trust to adopt any specific conflict of interest policy not otherwise required by this paragraph or any other law or rule, or to supersede or limit any requirement  or  duty  governing  conflicts  of interest required by any other law or rule.  (e) (1) Except as provided in subparagraph three  of  this  paragraph, the trustees of every trust that has twenty or more employees and in the prior  fiscal  year  had annual revenue in excess of one million dollars shall adopt, and oversee the implementation of, and compliance  with,  a whistleblower  policy  to  protect  from  retaliation persons who report suspected improper conduct. Such policy shall provide that  no  officer, trustee,  employee or volunteer of a trust who in good faith reports any action or suspected action taken by or within the trust that is illegal, fraudulent or in violation of any adopted  policy  of  the  trust  shall suffer intimidation, harassment, discrimination or other retaliation or, in the case of employees, adverse employment consequence.  (2) The whistleblower policy shall include the following provisions:  (A) Procedures for the reporting of violations or suspected violations of  laws  or  trust  policies,  including  procedures for preserving the confidentiality of reported information;  (B) A requirement that a trustee, officer or employee of the trust  be designated  to administer, the whistleblower policy and to report to the trustees or an authorized committee thereof, except  that  trustees  who are   employees   may   not   participate  in  any  board  or  committee deliberations or voting relating to administration of the  whistleblower policy;  (C)   A   requirement  that  the  person  who  is  the  subject  of  a whistleblower complaint not be present at or  participate  in  board  or committee deliberation or vote on the matter relating to such complaint, provided  that  nothing in this subparagraph shall prohibit the board or committee from  requesting  that  the  person  who  is  subject  to  the complaint  present  information  as  background or answer questions at a committee or board meeting prior to the commencement of deliberations or voting relating thereto; and  (D) A requirement that a copy of the  policy  be  distributed  to  all trustees,  officers,  employees and volunteers, with instructions on how to comply with the procedures set forth in the policy. For  purposes  of this  subdivision, posting the policy on the corporation's website or at the corporation's  offices  in  a  conspicuous  location  accessible  to employees  and volunteers are among the methods a corporation may use to satisfy the distribution requirement.  (3) A trust that has adopted  and  possesses  a  whistleblower  policy pursuant   to  federal,  state  or  local  laws  that  is  substantially consistent with the provisions of subparagraph  two  of  this  paragraph shall be deemed in compliance with the provisions of this paragraph.  (4)  Nothing  in  this  paragraph  shall be interpreted to relieve any trust  from  any  additional  requirements  in  relation   to   internal compliance, retaliation, or document retention required by any other law or rule.