2023 New York Laws › NPC - Not-For-Profit Corporation › Article 5-A - Prudent Management of Institutional Funds Act › 553 - Appropriation for Expenditure or Accumulation of Endowment Fund; Rules of Construction.

§ 553. Appropriation  for expenditure or accumulation of endowment fund;
rules of construction.
(a) 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 determines 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 determination to appropriate
or accumulate, the institution shall act in good faith,  with  the  care
that  an  ordinarily  prudent  person  in a like position would exercise
under similar  circumstances,  and  shall  consider,  if  relevant,  the
following factors:
(1) the duration and preservation of the endowment fund;
(2) the purposes of the institution and the endowment fund;
(3) general economic conditions;
(4) the possible effect of inflation or deflation;
(5)  the  expected  total  return  from income and the appreciation of
investments;
(6) other resources of the institution;
(7) where  appropriate  and  circumstances  would  otherwise  warrant,
alternatives   to   expenditure   of  the  endowment  fund,  giving  due
consideration to the effect that  such  alternatives  may  have  on  the
institution; and
(8) the investment policy of the institution.
For each determination to appropriate for expenditure, the institution
shall  keep  a  contemporaneous record describing the consideration that
was given by the governing board to each of the  factors  enumerated  in
this paragraph.
(b)   To  limit  the  authority  to  appropriate  for  expenditure  or
accumulate under paragraph (a) of this section, a gift  instrument  must
specifically  state  the  limitation. Terms in a gift instrument setting
forth  a  specific  spending  level,  rate,  or  amount,  or  explicitly
modifying or overriding the provisions of paragraph (a) of this section,
will   limit  the  authority  of  the  institution  to  appropriate  for
expenditure or accumulate under paragraph (a) of this section.
(c) 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:
(1)  create  an  endowment  fund  of  permanent  duration unless other
language in the gift instrument limits the duration or  purpose  of  the
fund; and
(2)   do   not  otherwise  limit  the  authority  to  appropriate  for
expenditure or accumulate under paragraph (a) of this section.
(d) A  rebuttable  presumption  of  imprudence  shall  apply  to  gift
instruments executed upon or after the effective date of this article as
follows:  The  appropriation  for  expenditure  in any year of an amount
greater than seven percent of the fair  market  value  of  an  endowment
fund,  calculated  on  the  basis  of  market values determined at least
quarterly and averaged over  a  period  of  not  less  than  five  years
immediately   preceding   the   year  in  which  the  appropriation  for
expenditure is made, creates a rebuttable presumption of imprudence. For
an endowment fund in existence for  fewer  than  five  years,  the  fair
market value of the endowment fund must be calculated for the period the
endowment fund has been in existence. This subsection does not:
(1)  apply  to  an  appropriation  for expenditure permitted under law
other than the chapter of the laws of 2010 that enacted this article  or
by the gift instrument; or
(2)  create  a  presumption  of  prudence  for  an  appropriation  for
expenditure of an amount less than or equal to seven percent of the fair
market value of the endowment fund.
(e)(1) With respect to a gift instrument executed by the donor  before
the  effective  date  of this article an institution must provide ninety
days notice to the  donor,  if  the  donor  is  then  available,  before
applying  paragraph (a) of this section for the first time, during which
time the donor may clarify or amend the gift instrument to prohibit  the
application  of paragraph (a) of this section. Such notice shall include
a form for use by the donor, which shall contain language  substantially
as follows:
Attention, Donor:
Please check Box #1 or #2 below and return to the address shown above.
( ) #1 The institution may spend as much of my gift as may be prudent.
(  ) #2 The institution may not spend below the original dollar value of
my gift.
If you check Box #1 above, the institution may spend as much of
your endowment gift (including all  or  part  of  the  original
value  of  your  gift) as may be prudent under the criteria set
forth in Article 5-A of the Not-for-Profit Corporation Law (The
Prudent Management of Institutional Funds Act).
If you check Box #2 above, the institution may not spend  below
the  original dollar value of your endowment gift but may spend
the income and the appreciation over the original dollar  value
if  it is prudent to do so. The criteria for the expenditure of
endowment funds set forth in Article 5-A of the  Not-for-Profit
Corporation  Law (The Prudent Management of Institutional Funds
Act) will not apply to your gift.
If the donor does not respond within ninety days from the date  notice
was  given,  paragraphs  (a),  (b),  and  (c)  of  this section shall be
applied.
(2) This paragraph shall not apply if: (A) the gift instrument permits
appropriation for expenditure from the endowment fund without regard for
the fund's historic dollar value; (B) the  gift  instrument  limits  the
institution's  authority  to  appropriate  for expenditure in accordance
with paragraph (b) of this section; or (C) the gift  consists  of  funds
received as a result of an institutional solicitation without a separate
statement by the donor expressing a restriction on the use of funds.
(f)  When an institution acts pursuant to paragraph (a) or (e) of this
section, it shall keep a record of such action.