§ 18-12.1-4 - Appropriation for expenditure or accumulation of endowment fund; rules of construction.
SECTION 18-12.1-4
§ 18-12.1-4 Appropriation for expenditureor accumulation of endowment fund; rules of construction. – (a) Subject to the intent of a donor expressed in the gift instrument [andto subsection (d)], an institution may appropriate for expenditure oraccumulate so much of an endowment fund as the institution determines isprudent for the uses, benefits, purposes, and duration for which the endowmentfund is established. Unless stated otherwise in the gift instrument, the assetsin an endowment fund are donor-restricted assets until appropriated forexpenditure by the institution. In making a determination to appropriate oraccumulate, the institution shall act in good faith, with the care that anordinarily prudent person in a like position would exercise under similarcircumstances, 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 theappreciation of investments;
(6) Other resources of the institution; and
(7) The investment policy of the institution.
(b) To limit the authority to appropriate for expenditure oraccumulate under subsection (a), a gift instrument must specifically state thelimitation.
(c) Terms in a gift instrument designating a gift as anendowment, or a direction or authorization in the gift instrument to use only"income", "interest", "dividends", or "rents, issues, or profits", or "topreserve the principal intact", or words similar import:
(1) Create an endowment fund of permanent duration unlessother language in the gift instrument limits the duration or purpose of thefund; and
(2) Do not otherwise limit the authority to appropriate forexpenditure or accumulate under subsection (a).
(d) The appropriation for expenditure in any year of anamount greater than seven (7%) percent of the fair market value of an endowmentfund, calculated on the basis of market values determined at least quarterlyand averaged over a period of not less than three (3) years immediatelypreceding the year in which the appropriation for expenditure is made, createsa rebuttable presumption of imprudence. For an endowment fund in existence forfewer than three (3) years, the fair market value of the endowment fund must becalculated for the period the endowment fund has been in existence. Thissubsection does not:
(1) Apply to an appropriation for expenditure permitted underlaw other than this chapter or by the gift instrument; or
(2) Create a presumption of prudence for an appropriation forexpenditure of an amount less than or equal to seven (7%) percent of the fairmarket value of the endowment fund.