2023 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.