Estate Planning Journal: Was It Wise to Try to Implement Trust Law Reforms Through the Uniform Prudent Management of Institutional Funds Act? (February 10, 2022)

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.

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