MODEL PROTECTION OF CHARITABLE ASSETS ACT

Transcription

1 MODEL PROTECTION OF CHARITABLE ASSETS ACT Presented By: Colorado Secretary of State s Office Colorado Attorney General s Office COLORADO DEPARTMENT OF STATE 1700 Broadway, Ste. 200 Denver, CO November 10, 2011

2 Goals of Presentation Summarize Current State of Common Law Authority of Attorney General to Protect Charitable Assets and Donor Intent The Model Protection of Charitable Assets Act (MPOCAA) Why Now? Intent and Key Elements of MPOCAA Summarize Content of MPOCAA Questions/Discussion

3 HISTORY OFATTORNEYGENERAL English Common Law COMMONLAWPOWERS Recognizes that the beneficiaries of charitable assets will not be motivated by self-interest to over-see. Parens Patriae role of the Monarch. Attorney General represents the public beneficiaries of charities. Attorneys General have broad power to oversee charitable organizations.

4 HISTORY OFATTORNEYGENERAL COMMONLAWPOWERS-COLORADO Colorado recognizes Attorney General Common Law Powers Organic statute specifically identifies powers related to trusts established for charitable, educational, religious or benevolent purposes. CRS (5).

5 ATTORNEYGENERALCOMMONLAW POWERS-COLORADO Two key issues: May sue to ensure funds are used as intended by the donor and not wasted by the charity. Extends equally to corporations and trusts. Cy Pres: Reform charitable purpose when impossible or impractical to carry out donor intent.

6 EXTENT OFATTORNEYGENERAL COMMONLAWPOWERS Authority covers all assets dedicated to charitable purposes. Legislature has augmented Attorney General s powers with statutory authority. Legislature has not limited Attorney General s common law powers. (Colo. Rev. Stat )

7 ATTORNEYGENERALSTATUTORY AUTHORITY-COLORADO Colorado Charitable Solicitations Act, Colo. Rev. Stat et seq. Transactions Involving Licensed Hospitals, Colo. Rev. Stat et seq. Colorado Revised Nonprofit Corporations Act, Colo. Rev. Stat through 304. Uniform Prudent Management of Institutional Funds Act, Colo. Rev. Stat

8 MPOCAA Why Now? Uniform Law Commission ( ULC ) aka National Conference of Commissioners of Uniform State Laws ( NCCUSL ) mission: promote uniformity in state laws where it s desired and makes sense. Uniform Trust Code ( UTC ) and Uniform Prudent Management of Institutional Funds Act ( UPMIFA ) had recently been updated (in 2000 and 2006, respectively). What rationally should the next uniform project be? Recognition that 1954 Uniform Supervision of Charitable Assets Act was badly outdated and not widely adopted(ca, IL, MA, MI, MN, NH, NY, OH, OR, PA, RI, WA have registration laws separate from solicitation statutes, some based on 1954 Act). 2006: NCCUSL Study Committee on the Regulation of Charities formed. 2007: Study Committee proposes to replace the 1954 Uniform Supervision of Trustees for Charitable Purposes Act with a new Uniform or Model Act. Colorado Department of State 1700 Broadway Suite 200 Denver, CO (303) , (303) (fax)

9 Drafting Committee K. King Burnett (Chair), Webb, Burnett, Cornbrooks, Wilber, Vorhis, Douse & Mason, Salisbury, MD James Bopp, Jr., Bopp, Coleson & Bostrom, Terre Haute, IN Mary Jo Howard Dively, Carnegie Mellon University, Pittsburgh, PA Barry C. Hawkins, Shipman & Goodwin LLP, Stamford, CT Lyle W. Hillyard, Hillyard, Anderson & Olsen, P.C., Logan, UT Thomas L. Jones, University of Alabama School of Law, Tuscaloosa, AL Carl H. Lisman, Lisman, Webster & Leckerling, P.C., Burlington, VT John J. McAvoy, Washington, D.C. Frederick P. Stamp, Jr., U.S. District Court, Wheeling, WV Charles A. Trost, Commissioner of the Tennessee Department of Revenue, TN David S. Walker, Drake University Law School, Des Moines, IA Susan N. Gary (Reporter), University of Oregon School of Law, Eugene, OR

10 2011: MPOCAA Passed 2011: Uniform Law Commission s 120 th Annual Meeting held in Vail, CO, July MPOCAA approved July 12, 2011and recommended for passage in all states.

11 Need for MPOCAA Promote uniformity and minimize diversity. Articulate and confirm the role of the AG, provide a minimal statutory framework. Protect the role of the states with respect to protecting charitable assets. Clarify and exercise responsibilities. Given its sparse adoption and barebones approach, the current Uniform Act fails to reach many charities. Public confidence in charities is necessary to maintain the vibrancy of the charitable sector. If potential donors worry about misapplied funds, they are unlikely to contribute.

12 Key Provisions of MPOCAA The Attorney General has a duty to represent the public interest in the protection of charitable assets located and used in a state and all assets held by charities in a state. Suggests process and procedure relating to AG investigative authority. Provides the Attorney General with an inventory of basic information without overburdening the charities or the Attorney General with excessive reporting requirements. Specifies which transactions and legal proceedings require notice to the Attorney General. Provides for registration and annual reports for many charities. Permits AG cooperation with other state and federal officials.

13 Prefatory Note The Charitable Sector background and statistics. The Role of the Courts and the AG under Existing Law Goals of the Act Model v. Uniform Act opportunity for uniform approach later? Which Charities Does the Statute Cover? General Authority of the AG Registration Annual Reports Notice of Life Events Waiver of Filing Requirements Cooperation with Other Officials

14 Section 2 Definitions Charitable Asset -property that is given, received, or held for a charitable purpose. The term does not include property acquired or held for a for-profit purpose. Charitable Purpose -the relief of poverty, the advancement of education or religion, the promotion of health, the promotion of a governmental purpose, or any other purpose the achievement of which is beneficial to the community. Follows that of UTC 405, Restatement (Third) of Trusts 28 (2003), and UPMIFA 2(1) (2006). The definition of charitable that has developed under the common law. Means purposes considered charitable and not merely beneficial.

15 Section 2 Definitions (2) Person MPOCAA uses the definition of person approved by the Uniform Law Commission. The definition includes individuals as well as entities, and it includes charities organized as nonprofit corporations, charitable trusts or unincorporated associations. Record standard ULC definition. Responsible Individual -someone the Attorney General can contact for information about the charity. Should be someone who is generally familiar with how the charity is managed, but the person need not be a director or trustee. State -a state, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or any other U.S. territory or possession.

16 Section 3 Authority of AG to Protect Charitable Assets (1) States the duty of the AG to represent the public interest in the protection of charitable assets. MPOCAA articulates and clarifies the scopeof the duty. The AG s authority over charitable assets does not depend on the organizational form of the charity. The AG may take action to: Enforce purpose restrictions ( donor intent ) Prevent or remedy a breach of fiduciary duty (e.g. self-dealing) Prevent or remedy the mismanagement or waste of charitable assets. The AG may begin or intervene in an action to protect charitable assets.

17 Section 3 Authority of AG to Protect Charitable Assets (2) Investigations: the AG may conduct investigations, including exercising administrative subpoena power under [section of Colorado law providing for this], but the AG must have a reason to believe the investigation is necessary. MPOCAA does not limit the powers and duties of the AG under Colorado law other than MPOCAA. AG has authority to promulgate regulations in order to carry out the terms of MPOCAA and to provide guidance about compliance.

18 Section 4 Registration The AG shall establish and maintain public registry. Minimal information. Register if entity holds more than [$50,000] in charitable assets, and: is formed under Colorado law, or if the person is a trust, has principal place of administration in Colorado. Has principal place of business in Colorado. Holds charitable assets over [$50,000] in Colorado other than assets held primarily for investment purposes, or Conducts activities with a charitable purpose in Colorado. Defines what is not conducting activities.

19 Section 4 Registration Exemptions (1) Governmental agency or instrumentality. Organization created primarily to influence elections, to lobby, or as political advocacy organizations. Financial institution, attorney s trust account, investment company, etc.

20 Section 4 Registration RE: Wills and Revocable Trusts Exemptions (2) A personal representative of a decedent s estate that holds a charitable asset, during the period of administration of the estate. A trustee of a revocable trust that becomes irrevocable because of the settlor s death. Still must notify the AG after the donor s death. A person that has as its primary activity advocacy on issues of public or governmental policy. Religious organizations or churches. [Four alternatives: Alternative B most closely resembles Colorado Charitable Solicitations Act exemption.]

21 Section 4 What is Not Conducting Activities List of activities a charity might engage in that do not rise to the level of activity that requires registration. Goal is to limit registration to states in which the charity has sufficient activity or assets for the Attorney General to be concerned about proper administration.

22 Section 4 Registration Questions Name and address of the person. Name and address of the statutory agent. Name and contact information of responsible individual. Federal employer identification number [and] Federal tax-exempt information [.][; and] [Copies of documents that describe the charitable purposes of the charity and how the charity will use and administer its assets (usually articles and bylaws or a copy of the trust instrument).] [Name under which the person has registered under [Colorado Charitable Solicitations Act] and the registration number.]

23 Section 4 Time for Registration The charity must register within three months of the date the charity s assets exceed the value of $50,000. Even if the charity does not hold $50,000 at any one time, if a charity receives assets that total $50,000 in a 12-month period, the charity must register.

24 Section 5 Annual Report (1) File 4-1/2 months after fiscal year or when due with IRS (including extensions). Name and address of the person. Name and address of the statutory agent. Name and contact information of a responsible individual. Total revenue relating to person s charitable assets for the period. Value of the person s charitable assets as of the last day of the period. Description of the person s three most significant charitable activities,. Name under which the person has registered under the Colorado Charitable Solicitations Act and the registration number, if any. Copy of the Form 990, 990-EZ, or 990-PF, if the person files one.

25 Section 5 Annual Report (2) Questions about activities or incidents indicative of possible problems with management or use of assets: Contract, loan, lease, or other financial transaction with an officer, director, trustee, or other fiduciary of the person? Whether the person became aware of: Embezzlement, theft, or diversion of a charitable asset. Use of a charitable asset to pay any penalty, fine, or judgment. Payment by an officer, director, trustee, or other fiduciary of a penalty, fine, or judgment with respect to the person. Use of restricted funds for a purpose other than the charitable purpose specified in the restriction Whether the person received notice of revocation, modification, or denial of its federal or state charitable [income] tax exemption.

26 Section 6 Reportable Life Events (1) A dissolution or termination. The disposition of all or substantially all of its property. A merger, conversion, or domestication. A removal of the charity or of significant charitable assets from the state.

27 Section 6 Reportable Life Events (2) If a decedent s estate or a revocable trust after the settlor s death involves the distribution of property to a charity, the personal representative of the estate or the trustee of the trust must send the Attorney General: A copy of the will or a description of the charitable interests in the trust. Notice of revocation or modification of a federal, state, or local tax exemption.

28 Section 7 Notice to AG of Action or Proceeding Any person who asserts one of the following claims in a proceeding involving a charity or charitable assets must give written notice to the AG: An action seeking to enforce a term relating to a gift of a charitable asset. An action seeking to enforce the use of charitable assets or the breach of a duty owed to the charity. A proceeding seeking instructions relating to the management, use, or distribution of the charitable assets. A proceeding to construe a document under which charitable assets are held or to modify the terms under which charitable assets are held. A proceeding to remove, appoint, or replace a trustee of a charitable trust. A proceeding involving a trust or decedent s estate in which matters affecting charitable assets may be decided. A proceeding for bankruptcy or receivership.

29 Section 8 Waiver of Filing Requirement The Attorney General may waive registrationin Section 4 if a person is registered in another state under a law that is substantially similar to MPOCCA and files with the AG a copy of the registration filed in the other state. The Attorney General may waive the annual report in Section 5 if a person registers under the Colorado Charitable Solicitations Act. However, this section does notwaive the notification requirementsunder Sections 6 and 7.

30 Section 9 -Fees Registration: $[15] and, if the registration is not filed timely, a late fee of $[100]. Annual Report: $[15] and, if the report is not filed timely, a late fee of $[100].

31 Section 10 Cooperation with Other Officials Authorizes cooperation between the Attorney General and officials of other states and the federal government. Allows the Attorney General to coordinate with any other state agency and provide information to other agencies as well as request information from other agencies.

32 How MPOCAA Would Affect the AG s Current Powers (1) Provides clear statutory articulation of the AG s broad existing power under common law and confirms that the AG represents the public interest in the protection of charitable assets. AG may enforce the use of charitable assets by a charity for the purposes for which the assets were given to the charity. AG may take action to prevent or correct a breach of a fiduciary duty in connection with the administration of a charity or charitable assets. AG may intervene in an action brought to correct a misapplication of charitable funds, a departure from the purpose of the charity, or a breach of a fiduciary duty owed the charity.

33 How MPOCAA Would Affect the AG s Current Powers (2) Specifies which transactions ( life events ) and legal proceedings require notice to the AG. Provides the AG an adequate inventory of basic information can help AG better perform educational, facilitative, and regulatory roles. Clarifies the AG has more options to rehabilitate a charity than simply moving for judicial dissolution.

34 What Happens Next? Finalizing the very last tweaks in the ULC Styling Committee very soon early November, Staff and Drafting Committee members discuss with Attorney Generals in each state to confirm support. Find sponsors in state legislatures. Staff and committee members provide expert testimony.

35 Colorado ULC Commissioners Robert Gardner Thomas T. Grimshaw Stanley C. Kent Claire Levy Frank McNulty Donald E. Mielke Thomas Morris Charles W. Pike Brandon C. Shaffer

36 ULC s Track Record ULC is very effective at getting its model and uniform laws enacted. UTC is adopted now in 23 states, and is making progress in Massachusetts. UPMIFA adopted in 50 jurisdictions 48 states, plus DC and the US Virgin Islands.

37 Resources Uniform Law Commission (AKA the National Conference of Commissioners on Uniform State Laws): Colorado Attorney General: Council on Foundations: Colorado Association of Funders: National Council of Nonprofits: Colorado Nonprofit Association: Association of Small Foundations:

38 Questions? Chris Cash Charities Program Manager Alissa Gardenswartz Assistant Attorney General 1700 Broadway, Suite 200 Denver, CO (303) ext Sherman Street, 4th Floor Denver, CO 80203