By Attorney Adam J. Wiensch, Foley & Lardner LLP, and Cale Battles, Government Relations Coordinator, State Bar of Wisconsin
Adam J. Wiensch is a partner in the Milwaukee office of Foley & Lardner LLP. His practice is concentrated on advising clients on wealth transfer and protection techniques.
July 8, 2009 – Legislation updating prudence standards that govern the management and investment of funds held by institutions exclusively for charitable purposes has passed both houses of the Wisconsin Legislature and is awaiting action by Gov. Jim Doyle.
The bill (SB 31) implements changes to the Uniform Management of Institutional Funds Act (UMIFA) recommended by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2006. Members of NCCUSL spent four years developing and drafting language to replace UMIFA, which was incorporated into Wisconsin law in 1976, with the Uniform Prudent Management of Institutional Funds Act (UPMIFA) for enactment by state legislatures. It applies to funds held by institutions exclusively for charitable purposes.
SB 31 was introduced by State Senator Fred Risser and Representative David Cullen early in 2009 and the State Bar’s Real Property, Probate, and Trust (RPPT) Section actively supported its passage. The University of Wisconsin-Madison, Marquette University and the Wisconsin Bankers Association were among those who actively participated in the legislative process leading to the bill’s enactment.
The bill updates the prudence standard established in UMIFA to govern the management and investment of affected funds. Under the revised law, one of the enumerated prudence factors is the preservation of the funds, a factor not contained in UMIFA. With respect to the management and investment of assets in these funds, UPMIFA requires those who manage and invest assets to do all of the following:
- Consider the charitable purposes of the institution and the purposes of the institutional fund;
- Manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances;
- Incur only costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institution;
- Make a reasonable effort to verify facts relevant to the management and investment of the fund; and
- Generally consider general economic conditions; the possible effect of inflation or deflation; the expected tax consequences, if any, of investment decisions or strategies; the role that each investment or course of action plays within the overall investment portfolio of the fund; the expected total return from income and the appreciation of investments; other resources of the institution; the needs of the institution and the fund to make distributions and to preserve capital; and an asset's special relationship or special value, if any, to the charitable purposes of the institution.
UPMIFA authorizes an institution to appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the purposes for which the endowment fund is established. In making a determination to appropriate or accumulate, an institution must act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and must consider, if relevant: the duration and preservation of the endowment fund; the purposes of the institution and the endowment fund; general economic conditions; the possible effect of inflation or deflation; the expected total return from income and the appreciation of investments; other resources of the institution; and the investment policy of the institution.
SB 31, as amended by Senate Substitute Amendment 1, passed the Senate in May and the Assembly in June. Gov. Doyle is expected to sign the legislation into law soon.
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© 2009, State Bar of Wisconsin
