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Donor’s intent determines use of funds by charities

 By GAIL LIBERMAN

Special to the Daily News

Saturday, Sept. 17, 2011

Cash-strapped charities, restricted in Florida from tapping certain endowment funds often because the value has dipped below the original principal must wait until next July 1 for relief.

This, despite legislation already signed by Gov. Rick Scott in June relaxing restrictions on how not-for-profits can spend and invest their funds.

“It puts more emphasis on donors spelling out their intent on current gifts they’re making because this statute isn’t going to cover them until next July,” says attorney Thomas C. Lee Jr. with Gunster in Vero Beach.

Also, Lee says, “if the market tumbles again, charities with this problem aren’t going to be able to dig themselves out in the short term.”

It has been reported that the Norton Museum of Art appears to be at least one not-for-profit that can use the relief this legislative change provides.

Florida is one of the nation’s last states to adopt the “Uniform Prudent Management of Institutional Funds Act,” which is designed to free charities to use funds that are off-limits for spending and investing due to a hodge-podge of state laws. Similar provisions of the law already apply to Florida educational institutions.

In Florida, a non-educational not-for-profit’s ability to spend or invest funds may be restricted under specific circumstances. Among those:

■ if the value of a donor’s endowment fund dips below the amount given;

■ if the donor dies or is disabled, so the intent of the funds can’t be determined;

■ or if the donor’s original intent for the funds no longer makes sense.

The new law sets guidelines that would allow charities to prudently spend and invest funds under such circumstances.

Factors required to be considered, for example, include the possible effects of inflation and deflation; the duration and preservation of the endowment fund and tax consequences.

The final law, Lee says, adds a provision that if the fund is more than 20 years old and between $100,000 and $250,000, the charity could modify a donor’s restriction consistent with donor intent. Catch: The charity must notify the state attorney general and receive no objection.

Even though the law becomes effective next year, Lee notes that donors can clearly spell out what they want to do with their funds. You can state in your agreement with the charity that even if the value of your endowment drops below the original principal, it can be spent.

Jay Fleisher, a Palm Beach Gardens sole practitioner that represents charities in legal matters, says the new law merely gives donors more power to enforce restrictions they’ve made on their donations.

Donors who want funds for a specific purpose had better put it in writing and have it acknowledged by the charity, he advises.

You can find most information on how a charity invests funds in public documents, he says. You can obtain IRS 990 forms going back three years and evaluate what the charity did with the money and how it was spent. Most large charities also will put out an annual report that indicates how they invest and the types of returns they had.

“I’m unaware that charities legally have to have an investment policy,” he says. “The donor is certainly free to inquire.”

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