As Introduced 1 123rd General Assembly 4 Regular Session H. B. No. 161 5 1999-2000 6 REPRESENTATIVES WOMER BENJAMIN-MOTTLEY-TIBERI-HARRIS-BOGGS- 8 GERBERRY-JOLIVETTE-METELSKY-CALLENDER-VESPER-HARTNETT-OLMAN- 9 TRAKAS-ALLEN-SCHULER-PATTON-O'BRIEN-SULLIVAN-LOGAN-D.MILLER- 10 VAN VYVEN-AMSTUTZ-HOLLISTER-CORBIN-VESPER-BENDER-WILLAMOWSKI- 11 GOODMAN-JONES-YOUNG-CLANCY-ROMAN-JACOBSON-KREBS 12 13 A B I L L To enact sections 1340.31 to 1340.37 of the Revised 15 Code to enact the "Institutional Trust Funds Act" 16 to define income and establish spending standards 17 for trust assets that are held for the benefit of charities. BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 19 Section 1. That sections 1340.31, 1340.32, 1340.33, 21 1340.34, 1340.35, 1340.36, and 1340.37 of the Revised Code be 22 enacted to read as follows: Sec. 1340.31. AS USED IN SECTIONS 1340.31 TO 1340.37 OF 26 THE REVISED CODE: (A) "INSTITUTION" MEANS AN INCORPORATED OR UNINCORPORATED 28 ORGANIZATION THAT IS ORGANIZED AND OPERATED EXCLUSIVELY FOR 30 EDUCATIONAL, RELIGIOUS, CHARITABLE, OR OTHER ELEEMOSYNARY 31 PURPOSES OR A GOVERNMENTAL ORGANIZATION TO THE EXTENT THAT IT 32 HOLDS FUNDS EXCLUSIVELY FOR ANY OF THOSE PURPOSES. (B) "GOVERNING BOARD" MEANS THE BODY RESPONSIBLE FOR THE 34 MANAGEMENT OF AN INSTITUTION. 36 (C) "INSTITUTIONAL TRUST FUND" MEANS A TRUST FUND, OR A 38 PART OF A TRUST FUND, THAT IS HELD BY A TRUSTEE FOR THE EXCLUSIVE 40 USE, BENEFIT, OR PURPOSES OF ONE OR MORE INSTITUTIONS AND THAT IS 41 NOT WHOLLY DISTRIBUTABLE TO THE INSTITUTION OR INSTITUTIONS ON A 42 2 CURRENT BASIS UNDER THE TERMS OF THE APPLICABLE TRUST INSTRUMENT. 43 "INSTITUTIONAL TRUST FUND" DOES NOT INCLUDE A FUND IN WHICH A 44 BENEFICIARY THAT IS NOT AN INSTITUTION HAS AN INTEREST OTHER THAN 45 A RIGHT THAT MAY ARISE UPON A VIOLATION OF A COVENANT UNDER THE TERMS OF THE APPLICABLE TRUST INSTRUMENT OR UPON A VIOLATION OF 46 OR THE FAILURE OF THE PURPOSES OF THE FUND. 47 (D) "APPLICABLE FUND VALUE" MEANS FOR ANY PARTICULAR 49 FISCAL YEAR THE SUM OF THE MONTH-END VALUES OF THE NET ASSETS OF 51 AN INSTITUTIONAL TRUST FUND FOR THE PRIOR FISCAL YEAR FOR THOSE 52 MONTHS IN WHICH THE INSTITUTIONAL TRUST FUND HAS BEEN IN 53 EXISTENCE DURING SUCH PRIOR FISCAL YEAR DIVIDED BY THE NUMBER OF 54 THOSE MONTHS. THE MONTH-END VALUES SHALL BE DETERMINED BY THE 55 TRUSTEE IN ACCORDANCE WITH THE TRUSTEE'S RECORDS, AND ANY SUCH 56 DETERMINATION MADE BY A TRUSTEE IN GOOD FAITH IS CONCLUSIVE. 57 (E) "TRUST INSTRUMENT" MEANS A TESTAMENTARY OR INTER VIVOS 59 TRUST UNDER WHICH THE TRUSTEE OF THE TRUST HOLDS AN INSTITUTIONAL 61 TRUST FUND. (F) "TRUSTEE" MEANS AN INDIVIDUAL, CORPORATION, 63 INSTITUTION, OR ORGANIZATION, INCLUDING, BUT NOT LIMITED TO, A 65 BANK, TRUST COMPANY, OR OTHER FINANCIAL INSTITUTION, SERVING AS A 66 TRUSTEE OR AS SOLE TRUSTEE UNDER A TRUST INSTRUMENT. "TRUSTEE" 68 INCLUDES AN ORIGINAL TRUSTEE AND ANY SUCCESSOR OR ADDED TRUSTEE. Sec. 1340.32. (A) SUBJECT TO DIVISION (D) OF THIS SECTION 72 AND SECTION 1340.33 OF THE REVISED CODE, DURING ANY FISCAL YEAR 74 IN WHICH INCOME MAY BE OR IS REQUIRED TO BE DISTRIBUTED TO AN 76 INSTITUTION FROM AN INSTITUTIONAL TRUST FUND, INCOME MEANS THE GREATER OF THE FOLLOWING: 77 (1) THE INCOME FROM THE ASSETS OF THE INSTITUTIONAL TRUST 79 FUND FOR THE FISCAL YEAR AS DETERMINED IN ACCORDANCE WITH THE 80 APPLICABLE TRUST INSTRUMENT AND APPLICABLE LAW WITHOUT REGARD TO 81 SECTIONS 1340.31 TO 1340.37 OF THE REVISED CODE; 82 (2) THE AMOUNT REQUESTED BY THE INSTITUTION'S GOVERNING 84 BOARD FOR THE FISCAL YEAR PURSUANT TO DIVISION (B) OF THIS 85 SECTION. 3 (B) AN INSTITUTION'S GOVERNING BOARD MAY REQUEST THAT AN 87 AMOUNT BE DISTRIBUTED TO THE INSTITUTION FOR THE FISCAL YEAR, AND 88 THAT AMOUNT SHALL NOT EXCEED THE SUM OF BOTH OF THE FOLLOWING: 90 (1) FIVE PER CENT OF THE APPLICABLE FUND VALUE FOR THE 92 INSTITUTIONAL TRUST FUND FOR THE FISCAL YEAR; 95 (2) IF, IN ANY PRIOR FISCAL YEAR THAT IS AFTER THE 98 EFFECTIVE DATE OF THIS SECTION, THE GOVERNING BOARD REQUESTED 99 LESS THAN FIVE PER CENT OF THE APPLICABLE FUND VALUE FOR SUCH 100 PRIOR FISCAL YEAR AND IF THE AMOUNT THE INSTITUTION ACTUALLY 101 RECEIVED FROM THE INSTITUTIONAL TRUST FUND PURSUANT TO DIVISION 103 (A) OF THIS SECTION WAS LESS THAN FIVE PER CENT FOR SUCH PRIOR 104 FISCAL YEAR, THE AGGREGATE DIFFERENCE BETWEEN FIVE PER CENT OF 105 THE APPLICABLE FUND VALUE WITH RESPECT TO EACH SUCH PRIOR FISCAL 106 YEAR AND THE AMOUNT THE INSTITUTION ACTUALLY RECEIVED PURSUANT TO 107 DIVISION (A) OF THIS SECTION FOR SUCH PRIOR FISCAL YEAR. 108 (C) IF, UNDER A TRUST INSTRUMENT, MORE THAN ONE 110 INSTITUTION IS A BENEFICIARY OF AN INSTITUTIONAL TRUST FUND, THE 112 TRUSTEE SHALL TAKE SUCH ACTIONS THAT THE TRUSTEE DETERMINES 113 APPROPRIATE OR NECESSARY TO ALLOW FOR THE DISTRIBUTIONS OF INCOME AS CONTEMPLATED BY DIVISION (A) OF THIS SECTION, WHICH ACTIONS 114 MAY INCLUDE DIVIDING THE INSTITUTIONAL TRUST FUND INTO SEPARATE 117 SHARES ACCORDING TO THE INTEREST THAT EACH INSTITUTION HAS IN THE 118 TOTAL INSTITUTIONAL TRUST FUND HELD UNDER THE TRUST INSTRUMENT. 119 (D) THIS SECTION DOES NOT LIMIT THE AUTHORITY OR 121 OBLIGATION OF A TRUSTEE TO DISTRIBUTE, OR THE AUTHORITY OF A 123 GOVERNING BOARD TO REQUEST, FUNDS AS PERMITTED OR REQUIRED UNDER 124 THE TERMS OF THE APPLICABLE TRUST INSTRUMENT. 125 Sec. 1340.33. (A) DIVISION (A) OF SECTION 1340.32 OF THE 129 REVISED CODE DOES NOT APPLY IF THE APPLICABLE TRUST INSTRUMENT 130 EXPRESSLY INDICATES THE SETTLOR'S INTENTION THAT INCOME IS TO BE 131 OTHERWISE THAN AS DEFINED IN DIVISION (A) OF SECTION 1340.32 OF 133 THE REVISED CODE. (B) A RESTRICTION UPON THE DEFINITION OF INCOME IN 136 DIVISION (A) OF SECTION 1340.32 OF THE REVISED CODE MAY NOT BE 140 4 INFERRED FROM A DESIGNATION OF AN INSTITUTIONAL TRUST FUND AS AN 141 ENDOWMENT; A DIRECTION OR AUTHORIZATION IN THE APPLICABLE TRUST 143 INSTRUMENT TO USE ONLY "INCOME," "INTEREST," "DIVIDENDS," OR 144 "RENTS, ISSUES, OR PROFITS," OR "TO PRESERVE THE PRINCIPAL 145 INTACT," OR A DIRECTION THAT CONTAINS OTHER WORDS OF A SIMILAR 147 IMPORT; A DIRECTION IN A TRUST INSTRUMENT THAT INCOME AND 148 PRINCIPAL ARE TO BE DETERMINED BY REFERENCE TO CERTAIN STATUTORY 149 PROVISIONS; OR, SUBJECT TO DIVISION (A) OF THIS SECTION, THE 153 INCLUSION OF SPECIFIED PROVISIONS IN A TRUST INSTRUMENT SETTING 154 FORTH THE WAY IN WHICH INCOME AND PRINCIPAL ARE TO BE DETERMINED. 155 (C) THE RULE OF CONSTRUCTION SET FORTH IN DIVISION (B) OF 159 THIS SECTION APPLIES TO TRUST INSTRUMENTS EXECUTED OR IN EFFECT BEFORE, ON, OR AFTER THE EFFECTIVE DATE OF THIS SECTION. 160 Sec. 1340.34. (A) IN ADMINISTERING THE POWERS TO REQUEST 163 AMOUNTS FROM A TRUSTEE OF AN INSTITUTIONAL TRUST FUND IN 164 ACCORDANCE WITH DIVISIONS (A) AND (B) OF SECTION 1340.32 OF THE 167 REVISED CODE, MEMBERS OF A GOVERNING BOARD OF AN INSTITUTION 169 SHALL EXERCISE ORDINARY BUSINESS CARE AND PRUDENCE UNDER THE 171 FACTS AND CIRCUMSTANCES PREVAILING AT THE TIME OF THE ACTION OR 172 DECISION AND SHALL MAKE REQUESTS FOR AMOUNTS UNDER DIVISIONS (A) 173 AND (B) OF SECTION 1340.32 OF THE REVISED CODE ONLY AS IS PRUDENT 175 UNDER THIS STANDARD. IN SO DOING, THE GOVERNING BOARD SHALL 176 CONSIDER THE LONG- AND SHORT-TERM NEEDS OF THE INSTITUTION IN 177 CARRYING OUT ITS EDUCATIONAL, RELIGIOUS, CHARITABLE, OR OTHER 178 ELEEMOSYNARY PURPOSES; THE INSTITUTION'S PRESENT AND ANTICIPATED 179 FINANCIAL REQUIREMENTS; THE EXPECTED TOTAL RETURN ON THE 180 INVESTMENTS HELD BY THE INSTITUTION AND HELD BY THE TRUSTEE UNDER 182 THE APPLICABLE TRUST INSTRUMENT; PRICE LEVEL TRENDS; AND GENERAL ECONOMIC CONDITIONS. 184 (B) IN DETERMINING THE EXPECTED TOTAL RETURN ON THE 186 INVESTMENTS HELD BY A TRUSTEE OF AN INSTITUTIONAL TRUST FUND 187 UNDER THE APPLICABLE TRUST INSTRUMENT, THE MEMBERS OF THE 188 GOVERNING BOARD OF AN INSTITUTION MAY FOLLOW, AND ARE NOT 189 REQUIRED TO EXAMINE INDEPENDENTLY, THE DETERMINATION OF THE 190 5 TRUSTEE REGARDING THE EXPECTED TOTAL RETURN ON THE INVESTMENTS 191 HELD BY THE TRUSTEE. (C) A TRUSTEE OF AN INSTITUTIONAL TRUST FUND HAS NO DUTY 193 TO INQUIRE OR ASCERTAIN WHETHER THE GOVERNING BOARD OF AN 195 INSTITUTION HAS SATISFIED THE STANDARDS SET FORTH IN DIVISIONS 197 (A) AND (B) OF THIS SECTION, AND THE TRUSTEE DOES NOT HAVE ANY 200 LIABILITY FOR THE FAILURE OF THE GOVERNING BOARD TO SATISFY THOSE 202 STANDARDS. Sec. 1340.35. NOTHING IN SECTION 2109.67, SECTIONS 1340.01 204 TO 1340.13, OR ANY OTHER SECTION OF THE REVISED CODE LIMITS OR 209 RESTRICTS THE DEFINITION OF INCOME IN DIVISION (A) OF SECTION 211 1340.32 OF THE REVISED CODE OR LIMITS OR RESTRICTS A GOVERNING 214 BOARD OF AN INSTITUTION FROM REQUESTING, OR A TRUSTEE FROM 215 MAKING, DISTRIBUTIONS FROM AN INSTITUTIONAL TRUST FUND IN ACCORDANCE WITH SECTIONS 1340.31 TO 1340.37 OF THE REVISED CODE. 218 Sec. 1340.36. (A) NOTHING IN SECTIONS 1340.31 TO 1340.35 220 OF THE REVISED CODE AFFECTS THE CONSTRUCTION OR INTERPRETATION OF 223 SECTIONS 1715.51 TO 1715.59 OF THE REVISED CODE RELATING TO THE 227 UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT. SPECIFICALLY, 228 NEITHER THE PERCENTAGE SET FORTH IN DIVISION (B) OF SECTION 230 1340.32 OF THE REVISED CODE NOR THE AMOUNT ACTUALLY REQUESTED BY 233 A GOVERNING BOARD PURSUANT TO SECTION 1340.32 OF THE REVISED CODE 234 SHALL BE CONSTRUED OR INTERPRETED TO LIMIT OR EXPAND WHAT IS A 235 PRUDENT AMOUNT THAT CAN BE EXPENDED BY A GOVERNING BOARD OF AN 237 INSTITUTION UNDER SECTIONS 1715.51 TO 1715.59 OF THE REVISED 240 CODE. (B) IF AN INSTITUTIONAL TRUST FUND IS ALSO AN 242 INSTITUTIONAL FUND AS DEFINED IN DIVISION (B) OF SECTION 1715.51 246 OF THE REVISED CODE WITH THE RESULT THAT SECTIONS 1715.51 TO 249 1715.59 OF THE REVISED CODE ALSO ARE APPLICABLE TO THE 252 INSTITUTIONAL TRUST FUND, THEN SECTIONS 1715.51 TO 1715.59 OF THE 253 REVISED CODE APPLY TO THE INSTITUTIONAL TRUST FUND, AND SECTIONS 256 1340.31 TO 1340.37 OF THE REVISED CODE DO NOT APPLY TO THE 259 INSTITUTIONAL TRUST FUND. 6 Sec. 1340.37. SECTIONS 1340.31 TO 1340.37 OF THE REVISED 263 CODE MAY BE CITED AS THE "INSTITUTIONAL TRUST FUNDS ACT." 264