Thursday, July 9, 2015

Road Tripping to UPMIFA: Professors' Corner

The ABA's Real Property, Trust and Estate Section has a series called "Professors' Corner," which puts on some really great free webinars for ABA members (sorry - no CLE, but what do you want for free?) on real estate and T&E topics from both academic and practitioner view points.   This Wednesday I was in the midst of a road trip, during which I dialed in to the latest in the series on an update to UPMIFA.   (Don't worry, I pulled over to a Tim Horton's to dial in.   And get coffee.  Because road trip.)

The webinar featured Susan Gary from UOregon and Terry Knowles, the Assistant Director of Charitable Trusts in the New Hampshire Attorney General's office.    Many of you may know that Susan was the Reporter for UPMIFA with the Uniform Law Commission, and that Terry was an advisor (I believe on behalf of NASCO but I could be wrong on that.)   In any event, it was really interesting to hear both of them talk about what's happened in the nine years (has it really been nine years!!!) since UPMIFA was passed by the ULC.   

I highly recommend listening to the whole webinar (I think that it will archive soon so ABA should be able to access it) but here are three big picture take aways:

  • FIGHT!  The lawyers and accountants continue to use different definitions when dealing with endowed funds, which causes confusion all over the place.   Susan talked about how the accountants have defaulted to having their clients use historic dollar value  to define restricted assets, even thought that isn't required anywhere and actually sort of undercuts what UPMIFA is trying to do.    Often, if there is professional advice to small nonprofits, it's from the accounting folks and not the legal folks, so this problem really has cause some issues.  I was happy to hear from Susan that FASB is looking to revise this, and that it has some draft rules out for comment.
  • UNSAFE HARBORS.   As some of you may know, the original UPMIFA draft from the ULC has a provisions that says that endowment spending in excess of 7% is subject to a rebuttable presumption of unreasonableness.   Many states didn't adopt - it was interesting to hear that one of the professed rationales for not adopting the 7% rules was the concern that it would cause a safe harbor for 6.99% and under.  It was also intersting to hear Terry talk about what her office sees as overcoming that presumption - "we needed it because our budget is short" is insufficient!
  • WHAT IS THIS IPS OF WHICH YOU SPEAK?   Again, it was  interesting to hear Terry talk about what her office needs to do when evaluating spending decisions from endowments.     If an endowment is supposed to be perpetual, it really is important to take into account inflation as a factor for consideration, even if there is no magic in how you do it exactly.  It seems like the AGs are really looking for a thoughtful process and adherence to an investment policy statement. 

In any event, I do recommend the webinar to anyone interested in the endowment spending issue (which seems to be getting some attention from Congress and otherwise as of late - I've linked to Brian Galle's thought-provoking paper on endowment spending) and I really recommend the webinar if you find yourself with lots of time on I-90.

Safe summer travels, all.

EWW

https://lawprofessors.typepad.com/nonprofit/2015/07/road-tripping-to-upmifa-professors-corner.html

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