Wisconsin Adopts UPMIFA: Historic Dollar Value Rule for Endowments Eliminated
Tax-Exempt Organizations Alert 07/23/09 Norah L. Jones
On July 20, 2009, Wisconsin Governor Doyle signed the Uniform Prudent Management of Institutional Funds Act ("UPMIFA") into law, adding Wisconsin to the list of more than 40 states that have adopted the uniform act. UPMIFA replaces the Uniform Management of Institutional Funds Act ("UMIFA") in Wisconsin and differs from that earlier act in a few key areas: It eliminates the historic dollar value rule with respect to endowment fund spending, it updates the prudence standard for the management and investment of charitable funds, and it amends the provisions governing the release and modification of restrictions on charitable funds.
Wisconsin's UPMIFA is applicable to institutional funds existing on or established after August 4, 2009. For institutional funds in existence on August 4, 2009, UPMIFA affects only decisions made or actions taken on or after that date. A detailed update explaining UPMIFA's key provisions can be found here (discussing the version adopted in Illinois). The few instances where the Wisconsin version of UPMIFA differs from the version discussed in the earlier update are highlighted below.
Modification of "Old and Small" Funds
Wisconsin's version of UPMIFA allows for the release or modification of restrictions by the Wisconsin Attorney General without court involvement where either (1) a restriction is unlawful, impracticable, impossible to achieve, or wasteful;
or (2) the institutional fund subject to the restriction has a total value of less than $75,000 and has existed for more than 20 years and the funds are used in a manner consistent with the charitable purposes expressed in the gift instrument. (This latter provision differs from the provision set forth in the Illinois version of UPMIFA, which permits the Illinois Attorney General to release or modify restrictions where an old fund has a total value of less than $50,000.)
Application to Other Statutes
Wisconsin's version of UPMIFA specifically provides that it does not apply to the management of trust funds pursuant to Section 25.15 of the Wisconsin statutes. The Wisconsin version of UPMIFA does, however, specifically apply to the investment of gifts, bequests, or endowments received by a public library pursuant to Section 43.58 of the Wisconsin statutes.
Quarles & Brady Comments
As with the enactment of UPMIFA in any state, the enactment of UPMIFA in Wisconsin creates a number of planning opportunities and compliance responsibilities for charitable organizations. Wisconsin charitable organizations should determine whether they have institutional funds subject to UPMIFA. If an organization has such funds, the organization may wish to take the following steps:
It should review its investment policies and the terms of any delegation of investment authority to determine whether they comply with UPMIFA's prudent investment standards.
It should determine which of its institutional funds constitute endowment funds under UPMIFA. The terms of any such endowment fund should be reviewed to determine whether there are any specific donor restrictions regarding expenditures.
Endowment funds that do not contain specific expenditure limitations are subject to the new spending rules contained in UPMIFA. In setting a new endowment expenditure policy that complies with the new prudence standard, an institution should consider all of the factors set forth in UPMIFA.
Organizations that have standard endowment agreements for use with potential donors should review the agreements to make sure that they appropriately reference or incorporate the organization's new expenditure policy and allow for future changes.
UPMIFA makes clear that the governing documents of an endowment fund include an organization's charitable solicitation materials. Therefore, institutions should review their fundraising materials to make sure that they accurately represent the organization's spending policy and allow for future changes.
Donors to charitable institutions should determine whether it is appropriate or desirable to impose specific restrictions on any future gifts in order to eliminate or limit the application of UPMIFA's flexible endowment spending rules.
We note that most private foundations do not hold "endowment" funds for purposes of UPMIFA's spending rules. In most cases, the private foundation's spending obligations are not limited by the private foundation's governing documents or any separate gift instrument. There are, however, some circumstances where the provisions of UPMIFA might apply to a private foundation's spending policy. This is more likely to be the case if the foundation is older and is in trust, rather than corporate, form. If a private foundation (or any other organization) is concerned about how UPMIFA impacts its current spending policy, or the applicability of UPMIFA generally, it should contact its attorney.
This update is intended as a general summary of legal matters and not as specific advice to any particular client.
If you have any questions concerning the subject matter of this update, please contact Norah Jones at 414-277-5827 / [email protected] or your Quarles & Brady attorney.