C. Boone Schwartzel, of the Estate Planning Journal, has made available for download her article “Was It Wise to Try to Implement Trust Law Reforms Through the Uniform Prudent Management of Institutional Funds Act?”, published in the Estate Planning Journal. The abstract is as follows:
The Uniform Prudent Management of Institutional Funds Act
(UPMIFA)1 promulgated by the Uniform Law Commission, also known as
the National Conference of Commissioners on Uniform State Laws (the
Commissioners), replaced its predecessor, the Uniform Management of
Institutional Funds Act (UMIFA), in order to cause the principles of the
Uniform Prudent Investor Act (UPIA)2
to govern the investment and
management of institutional funds by nonprofit corporations. Whereas in
UMIFA, the Commissioners looked to the third edition of Professor A. W.
Scott’s treatise on the law of trusts (Scott on Trusts)3 and the Restatement
(Second) of Trusts4 of the American Law Institute (ALI) as its primary
sources of trust law, in UPMIFA the Commissioners turned instead to the
ALI’s Restatement (Third) of Trusts5 and its own Uniform Trust Code
(UTC),6 both of which were relatively new.
The goal of UMIFA was “to establish guidelines for the management
and use of investments held by eleemosynary institutions and funds”7
because universities, nonprofit corporations, and their boards grew concerned
over the absence of law clearly defining the scope of their investment
authority and duties in managing endowment funds and feared that courts
would apply to them the more conservative trust law, prudent man rule.
While their fears may have been “more legendary than real,” there was still
“substantial concern about the potential liability of the managers of the
institutional funds even though cases of actual liability are virtually nil.”8
The Commissioners looked to trust law to guide them in drafting
UMIFA because of the many similarities between charitable endowment
funds managed by charitable institutions and charitable trusts administered
by corporate trustees—i.e., both need to be invested long-term and often
restrict both annual fund expenditures and the purposes for which funds can
be spent.9 UPMIFA replaced and updated UMIFA’s provisions dealing with
the management and investment of institutional funds to reflect the principles of the UPIA.10 Unfortunately, as in UMIFA, the Commissioners did not stick
to their mission of guiding the management of endowment funds and chose
instead to create and add remedies of their own to provide charitable
institutions “an expeditious way to make necessary adjustments”11 when
donor restrictions no longer serve their original purpose. This Article focuses
on two topics that are tangential to UPMIFA’s primary focus on the
management and investment of endowment funds and have received little
attention: (1) how UPMIFA should apply to institutional funds established
between affiliated institutions in light of UPMIFA’s new definitions and
expanded scope, and more importantly (2) how the Commissioners’
preoccupation with reforming trust laws creates significant, unnecessary, and
avoidable problems under UPMIFA.
To read the full article, click: “Was It Wise to Try to Implement Trust Law Reforms Through the Uniform Prudent Management of Institutional Funds Act?”
Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.
Wealth Strategies Journal 