Pending Florida legislation would give charities more flexible guidelines

by Thomas J. Lee - Posted In: Private Wealth Services

Last month in the Florida House of Representatives, State Representative Kathleen Passidomo filed House Bill 599 entitled “Uniform Prudent Management of Institutional Funds.”  The bill would allow Florida charities to make distributions from endowment funds in which the fund fell below the original amount given to charity so long as the fund was being prudently managed for the long-term and distributions were consistent with the donor’s intent.  Currently this is impermissible in Florida for all charities except educational institutions.  Given that the S&P 500 dropped by approximately 45% in 2000 and again in 2007, many endowed gifts made since the late 90s are underwater and under current Florida law no distributions can be made from them despite the increasing need for aid to the community.  The proposed bill would remedy this.

In addition to authorizing distributions from “underwater endowments,” the proposed bill generally would mandate that charitable directors act in accordance with the donor’s intent, require charities to invest endowment funds in accordance with prudent investor rules, as defined by statute, which are generally designed to preserve the inflation adjusted purchasing power over the long-term, and permit endowments to be modified in a cost-efficient manner if their current terms were impeding the achievement of the donors’ intent.

If the bill is adopted, it will be effective on July 1. Currently, 47 states have adopted some version of this law, while only Florida, Pennsylvania and Mississippi have not.  Supporters of this bill could include taxpayers, community leaders, past and future charitable donors, and charitable organizations themselves, including their directors and the recipients of their largess.  In these troubled economic times, charities are in greater need for funds and the proposed bill would help relieve that need while still protecting the donors’ intent as to the use of their funds and preserve the inflation adjusted gift principal through prudent investment practices.

To review the proposed bill, click here.

For more information, view Thomas C. Lee, Jr.’s contact information here.