New York Laws
Article 5-A - Prudent Management of Institutional Funds Act
553 - Appropriation for Expenditure or Accumulation of Endowment Fund; Rules of Construction.

(a) 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. Unless stated otherwise in the gift instrument, the assets
in an endowment fund are donor-restricted assets until appropriated for
expenditure by the institution. In making a determination to appropriate
or accumulate, the institution shall act in good faith, with the care
that an ordinarily prudent person in a like position would exercise
under similar circumstances, 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 the appreciation of
investments;
(6) other resources of the institution;
(7) where appropriate and circumstances would otherwise warrant,
alternatives to expenditure of the endowment fund, giving due
consideration to the effect that such alternatives may have on the
institution; and
(8) the investment policy of the institution.
For each determination to appropriate for expenditure, the institution
shall keep a contemporaneous record describing the consideration that
was given by the governing board to each of the factors enumerated in
this paragraph.
(b) To limit the authority to appropriate for expenditure or
accumulate under paragraph (a) of this section, a gift instrument must
specifically state the limitation. Terms in a gift instrument setting
forth a specific spending level, rate, or amount, or explicitly
modifying or overriding the provisions of paragraph (a) of this section,
will limit the authority of the institution to appropriate for
expenditure or accumulate under paragraph (a) of this section.
(c) 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:
(1) create an endowment fund of permanent duration unless other
language in the gift instrument limits the duration or purpose of the
fund; and
(2) do not otherwise limit the authority to appropriate for
expenditure or accumulate under paragraph (a) of this section.
(d) A rebuttable presumption of imprudence shall apply to gift
instruments executed upon or after the effective date of this article as
follows: The appropriation for expenditure in any year of an amount
greater than seven percent of the fair market value of an endowment
fund, calculated on the basis of market values determined at least
quarterly and averaged over a period of not less than five years
immediately preceding the year in which the appropriation for
expenditure is made, creates a rebuttable presumption of imprudence. For
an endowment fund in existence for fewer than five years, the fair
market value of the endowment fund must be calculated for the period the
endowment fund has been in existence. This subsection does not:
(1) apply to an appropriation for expenditure permitted under law
other than the chapter of the laws of 2010 that enacted this article or
by the gift instrument; or
(2) create a presumption of prudence for an appropriation for
expenditure of an amount less than or equal to seven percent of the fair
market value of the endowment fund.
(e)(1) With respect to a gift instrument executed by the donor before
the effective date of this article an institution must provide ninety
days notice to the donor, if the donor is then available, before
applying paragraph (a) of this section for the first time, during which
time the donor may clarify or amend the gift instrument to prohibit the
application of paragraph (a) of this section. Such notice shall include
a form for use by the donor, which shall contain language substantially
as follows:
Attention, Donor:
Please check Box #1 or #2 below and return to the address shown above.
( ) #1 The institution may spend as much of my gift as may be prudent.
( ) #2 The institution may not spend below the original dollar value of
my gift.
If you check Box #1 above, the institution may spend as much of
your endowment gift (including all or part of the original
value of your gift) as may be prudent under the criteria set
forth in Article 5-A of the Not-for-Profit Corporation Law (The
Prudent Management of Institutional Funds Act).
If you check Box #2 above, the institution may not spend below
the original dollar value of your endowment gift but may spend
the income and the appreciation over the original dollar value
if it is prudent to do so. The criteria for the expenditure of
endowment funds set forth in Article 5-A of the Not-for-Profit
Corporation Law (The Prudent Management of Institutional Funds
Act) will not apply to your gift.
If the donor does not respond within ninety days from the date notice
was given, paragraphs (a), (b), and (c) of this section shall be
applied.
(2) This paragraph shall not apply if: (A) the gift instrument permits
appropriation for expenditure from the endowment fund without regard for
the fund's historic dollar value; (B) the gift instrument limits the
institution's authority to appropriate for expenditure in accordance
with paragraph (b) of this section; or (C) the gift consists of funds
received as a result of an institutional solicitation without a separate
statement by the donor expressing a restriction on the use of funds.
(f) When an institution acts pursuant to paragraph (a) or (e) of this
section, it shall keep a record of such action.