Prudent Management of Institutional Funds

Part 7 of Division 9 of the California Probate Code deals with the prudent management of funds. Section 18501 names the part as the Uniform Prudent Management of Institutional Funds Act.

Section 18502 defines the following terms: “charitable purpose,” “endowment fund, “gift instrument,” “institution,” “institutional fund,” “person,” “program-related asset,” and “record.”

Section 18503 provides that an institution, in managing and investing an institutional fund, is required to consider the charitable purposes of the institution and the purposes of the institutional fund. Each person responsible for managing and investing an institutional fund is required to 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.

Section 18504 explains that, subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established.

To limit the authority to appropriate for expenditure, a gift instrument must specifically state the limitation. Terms in a gift instrument designating a gift as an endowment, or a direction or authorization in the gift instrument to use only “income,” “interest,” “dividends,” or “rents, issues, or profits,” or “to preserve the principal intact,” or words of similar import have two specified effects.

Section 18505 allows an institution to delegate to an external agent the management and investment of an institutional fund to the extent that an institution could prudently delegate under the circumstances. An institution is required to act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, in three specified circumstances.

In performing a delegated function, an agent owes a duty to the institution to exercise reasonable care to comply with the scope and terms of the delegation. An institution may delegate management and investment functions to its committees, officers, or employees as authorized by law of this state other than this part.

Section 18506 states that, if the donor consents in a record, an institution may release or modify, in whole or in part, a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund. A release or modification may not allow a fund to be used for a purpose other than a charitable purpose of the institution.

Section 18507 provides that compliance with this part is determined in light of the facts and circumstances existing at the time a decision is made or action is taken, and not by hindsight.

Section 18510 states that, in applying and construing this uniform act, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.