As Reported by House Financial Institutions Committee 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- VAN 11
VYVEN-AMSTUTZ-HOLLISTER-CORBIN-BENDER-WILLAMOWSKI-GOODMAN-
JONES-YOUNG-CLANCY-ROMAN-JACOBSON-KREBS-EVANS-MAIER-SULZER- 12
SALERNO-GARDNER-MYERS 13
_________________________________________________________________ 14
A B I L L
To enact sections 1340.31 to 1340.37 of the Revised 16
Code to enact the "Institutional Trust Funds Act" 17
to define income and establish spending standards 18
for trust assets that are held for the benefit of
charities.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 20
Section 1. That sections 1340.31, 1340.32, 1340.33, 22
1340.34, 1340.35, 1340.36, and 1340.37 of the Revised Code be 23
enacted to read as follows:
Sec. 1340.31. AS USED IN SECTIONS 1340.31 TO 1340.37 OF 27
THE REVISED CODE:
(A) "INSTITUTION" MEANS AN INCORPORATED OR UNINCORPORATED 29
ORGANIZATION THAT IS ORGANIZED AND OPERATED EXCLUSIVELY FOR 31
EDUCATIONAL, RELIGIOUS, CHARITABLE, OR OTHER ELEEMOSYNARY 32
PURPOSES OR A GOVERNMENTAL ORGANIZATION TO THE EXTENT THAT IT 33
HOLDS FUNDS EXCLUSIVELY FOR ANY OF THOSE PURPOSES.
(B) "GOVERNING BOARD" MEANS THE BODY RESPONSIBLE FOR THE 35
MANAGEMENT OF AN INSTITUTION. 37
(C) "INSTITUTIONAL TRUST FUND" MEANS A TRUST FUND, OR A 39
PART OF A TRUST FUND, THAT IS HELD BY A TRUSTEE FOR THE EXCLUSIVE 41
USE, BENEFIT, OR PURPOSES OF ONE OR MORE INSTITUTIONS AND THAT IS 42
2
NOT WHOLLY DISTRIBUTABLE TO THE INSTITUTION OR INSTITUTIONS ON A 43
CURRENT BASIS UNDER THE TERMS OF THE APPLICABLE TRUST INSTRUMENT. 44
"INSTITUTIONAL TRUST FUND" DOES NOT INCLUDE A FUND IN WHICH A 45
BENEFICIARY THAT IS NOT AN INSTITUTION HAS AN INTEREST OTHER THAN 46
A RIGHT THAT MAY ARISE UPON A VIOLATION OF A COVENANT UNDER THE
TERMS OF THE APPLICABLE TRUST INSTRUMENT OR UPON A VIOLATION OF 47
OR THE FAILURE OF THE PURPOSES OF THE FUND. 48
(D) "APPLICABLE FUND VALUE" MEANS FOR ANY PARTICULAR 50
FISCAL YEAR THE SUM OF THE MONTH-END VALUES OF THE NET ASSETS OF 52
AN INSTITUTIONAL TRUST FUND FOR THE PRIOR FISCAL YEAR FOR THOSE 53
MONTHS IN WHICH THE INSTITUTIONAL TRUST FUND HAS BEEN IN 54
EXISTENCE DURING SUCH PRIOR FISCAL YEAR DIVIDED BY THE NUMBER OF 55
THOSE MONTHS. THE MONTH-END VALUES SHALL BE DETERMINED BY THE 56
TRUSTEE IN ACCORDANCE WITH THE TRUSTEE'S RECORDS, AND ANY SUCH 57
DETERMINATION MADE BY A TRUSTEE IN GOOD FAITH IS CONCLUSIVE. 58
(E) "TRUST INSTRUMENT" MEANS A TESTAMENTARY OR INTER VIVOS 60
TRUST UNDER WHICH THE TRUSTEE OF THE TRUST HOLDS AN INSTITUTIONAL 62
TRUST FUND.
(F) "TRUSTEE" MEANS AN INDIVIDUAL, CORPORATION, 64
INSTITUTION, OR ORGANIZATION, INCLUDING, BUT NOT LIMITED TO, A 66
BANK, TRUST COMPANY, OR OTHER FINANCIAL INSTITUTION, SERVING AS A 67
TRUSTEE OR AS SOLE TRUSTEE UNDER A TRUST INSTRUMENT. "TRUSTEE" 69
INCLUDES AN ORIGINAL TRUSTEE AND ANY SUCCESSOR OR ADDED TRUSTEE.
Sec. 1340.32. (A) SUBJECT TO DIVISION (D) OF THIS SECTION 73
AND SECTION 1340.33 OF THE REVISED CODE, DURING ANY FISCAL YEAR 75
IN WHICH INCOME MAY BE OR IS REQUIRED TO BE DISTRIBUTED TO AN 77
INSTITUTION FROM AN INSTITUTIONAL TRUST FUND, INCOME MEANS THE
GREATER OF THE FOLLOWING: 78
(1) THE INCOME FROM THE ASSETS OF THE INSTITUTIONAL TRUST 80
FUND FOR THE FISCAL YEAR AS DETERMINED IN ACCORDANCE WITH THE 81
APPLICABLE TRUST INSTRUMENT AND APPLICABLE LAW WITHOUT REGARD TO 82
SECTIONS 1340.31 TO 1340.37 OF THE REVISED CODE; 83
(2) THE AMOUNT REQUESTED BY THE INSTITUTION'S GOVERNING 85
BOARD FOR THE FISCAL YEAR PURSUANT TO DIVISION (B) OF THIS 86
3
SECTION.
(B) AN INSTITUTION'S GOVERNING BOARD MAY REQUEST THAT AN 88
AMOUNT BE DISTRIBUTED TO THE INSTITUTION FOR THE FISCAL YEAR, AND 89
THAT AMOUNT SHALL NOT EXCEED THE SUM OF BOTH OF THE FOLLOWING: 91
(1) FIVE PER CENT OF THE APPLICABLE FUND VALUE FOR THE 93
INSTITUTIONAL TRUST FUND FOR THE FISCAL YEAR; 96
(2) IF, IN ANY PRIOR FISCAL YEAR THAT IS AFTER THE 99
EFFECTIVE DATE OF THIS SECTION, THE GOVERNING BOARD REQUESTED 100
LESS THAN FIVE PER CENT OF THE APPLICABLE FUND VALUE FOR SUCH 101
PRIOR FISCAL YEAR AND IF THE AMOUNT THE INSTITUTION ACTUALLY 102
RECEIVED FROM THE INSTITUTIONAL TRUST FUND PURSUANT TO DIVISION 104
(A) OF THIS SECTION WAS LESS THAN FIVE PER CENT FOR SUCH PRIOR 105
FISCAL YEAR, THE AGGREGATE DIFFERENCE BETWEEN FIVE PER CENT OF 106
THE APPLICABLE FUND VALUE WITH RESPECT TO EACH SUCH PRIOR FISCAL 107
YEAR AND THE AMOUNT THE INSTITUTION ACTUALLY RECEIVED PURSUANT TO 108
DIVISION (A) OF THIS SECTION FOR SUCH PRIOR FISCAL YEAR. 109
(C) IF, UNDER A TRUST INSTRUMENT, MORE THAN ONE 111
INSTITUTION IS A BENEFICIARY OF AN INSTITUTIONAL TRUST FUND, THE 113
TRUSTEE SHALL TAKE SUCH ACTIONS THAT THE TRUSTEE DETERMINES 114
APPROPRIATE OR NECESSARY TO ALLOW FOR THE DISTRIBUTIONS OF INCOME
AS CONTEMPLATED BY DIVISION (A) OF THIS SECTION, WHICH ACTIONS 115
MAY INCLUDE DIVIDING THE INSTITUTIONAL TRUST FUND INTO SEPARATE 118
SHARES ACCORDING TO THE INTEREST THAT EACH INSTITUTION HAS IN THE 119
TOTAL INSTITUTIONAL TRUST FUND HELD UNDER THE TRUST INSTRUMENT. 120
(D) THIS SECTION DOES NOT LIMIT THE AUTHORITY OR 122
OBLIGATION OF A TRUSTEE TO DISTRIBUTE, OR THE AUTHORITY OF A 124
GOVERNING BOARD TO REQUEST, FUNDS AS PERMITTED OR REQUIRED UNDER 125
THE TERMS OF THE APPLICABLE TRUST INSTRUMENT. 126
Sec. 1340.33. (A) DIVISION (A) OF SECTION 1340.32 OF THE 130
REVISED CODE DOES NOT APPLY IF THE APPLICABLE TRUST INSTRUMENT 131
EXPRESSLY INDICATES THE SETTLOR'S INTENTION THAT INCOME IS TO BE 132
OTHERWISE THAN AS DEFINED IN DIVISION (A) OF SECTION 1340.32 OF 134
THE REVISED CODE.
(B) A RESTRICTION UPON THE DEFINITION OF INCOME IN 137
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DIVISION (A) OF SECTION 1340.32 OF THE REVISED CODE MAY NOT BE 141
INFERRED FROM A DESIGNATION OF AN INSTITUTIONAL TRUST FUND AS AN 142
ENDOWMENT; A DIRECTION OR AUTHORIZATION IN THE APPLICABLE TRUST 144
INSTRUMENT TO USE ONLY "INCOME," "INTEREST," "DIVIDENDS," OR 145
"RENTS, ISSUES, OR PROFITS," OR "TO PRESERVE THE PRINCIPAL 146
INTACT," OR A DIRECTION THAT CONTAINS OTHER WORDS OF A SIMILAR 148
IMPORT; A DIRECTION IN A TRUST INSTRUMENT THAT INCOME AND 149
PRINCIPAL ARE TO BE DETERMINED BY REFERENCE TO CERTAIN STATUTORY 150
PROVISIONS; OR, SUBJECT TO DIVISION (A) OF THIS SECTION, THE 154
INCLUSION OF SPECIFIED PROVISIONS IN A TRUST INSTRUMENT SETTING 155
FORTH THE WAY IN WHICH INCOME AND PRINCIPAL ARE TO BE DETERMINED. 156
(C) THE RULE OF CONSTRUCTION SET FORTH IN DIVISION (B) OF 160
THIS SECTION APPLIES TO TRUST INSTRUMENTS EXECUTED OR IN EFFECT
BEFORE, ON, OR AFTER THE EFFECTIVE DATE OF THIS SECTION. 161
Sec. 1340.34. (A) IN ADMINISTERING THE POWERS TO REQUEST 164
AMOUNTS FROM A TRUSTEE OF AN INSTITUTIONAL TRUST FUND IN 165
ACCORDANCE WITH DIVISIONS (A) AND (B) OF SECTION 1340.32 OF THE 168
REVISED CODE, MEMBERS OF A GOVERNING BOARD OF AN INSTITUTION 170
SHALL EXERCISE ORDINARY BUSINESS CARE AND PRUDENCE UNDER THE 172
FACTS AND CIRCUMSTANCES PREVAILING AT THE TIME OF THE ACTION OR 173
DECISION AND SHALL MAKE REQUESTS FOR AMOUNTS UNDER DIVISIONS (A) 174
AND (B) OF SECTION 1340.32 OF THE REVISED CODE ONLY AS IS PRUDENT 176
UNDER THIS STANDARD. IN SO DOING, THE GOVERNING BOARD SHALL 177
CONSIDER THE LONG- AND SHORT-TERM NEEDS OF THE INSTITUTION IN 178
CARRYING OUT ITS EDUCATIONAL, RELIGIOUS, CHARITABLE, OR OTHER 179
ELEEMOSYNARY PURPOSES; THE INSTITUTION'S PRESENT AND ANTICIPATED 180
FINANCIAL REQUIREMENTS; THE EXPECTED TOTAL RETURN ON THE 181
INVESTMENTS HELD BY THE INSTITUTION AND HELD BY THE TRUSTEE UNDER 183
THE APPLICABLE TRUST INSTRUMENT; PRICE LEVEL TRENDS; AND GENERAL
ECONOMIC CONDITIONS. 185
(B) IN DETERMINING THE EXPECTED TOTAL RETURN ON THE 187
INVESTMENTS HELD BY A TRUSTEE OF AN INSTITUTIONAL TRUST FUND 188
UNDER THE APPLICABLE TRUST INSTRUMENT, THE MEMBERS OF THE 189
GOVERNING BOARD OF AN INSTITUTION MAY FOLLOW, AND ARE NOT 190
5
REQUIRED TO EXAMINE INDEPENDENTLY, THE DETERMINATION OF THE 191
TRUSTEE REGARDING THE EXPECTED TOTAL RETURN ON THE INVESTMENTS 192
HELD BY THE TRUSTEE.
(C) A TRUSTEE OF AN INSTITUTIONAL TRUST FUND HAS NO DUTY 194
TO INQUIRE OR ASCERTAIN WHETHER THE GOVERNING BOARD OF AN 196
INSTITUTION HAS SATISFIED THE STANDARDS SET FORTH IN DIVISIONS 198
(A) AND (B) OF THIS SECTION, AND THE TRUSTEE DOES NOT HAVE ANY 201
LIABILITY FOR THE FAILURE OF THE GOVERNING BOARD TO SATISFY THOSE 203
STANDARDS.
Sec. 1340.35. NOTHING IN SECTION 2109.67, SECTIONS 1340.01 205
TO 1340.13, OR ANY OTHER SECTION OF THE REVISED CODE LIMITS OR 210
RESTRICTS THE DEFINITION OF INCOME IN DIVISION (A) OF SECTION 212
1340.32 OF THE REVISED CODE OR LIMITS OR RESTRICTS A GOVERNING 215
BOARD OF AN INSTITUTION FROM REQUESTING, OR A TRUSTEE FROM 216
MAKING, DISTRIBUTIONS FROM AN INSTITUTIONAL TRUST FUND IN
ACCORDANCE WITH SECTIONS 1340.31 TO 1340.37 OF THE REVISED CODE. 219
Sec. 1340.36. (A) NOTHING IN SECTIONS 1340.31 TO 1340.35 221
OF THE REVISED CODE AFFECTS THE CONSTRUCTION OR INTERPRETATION OF 224
SECTIONS 1715.51 TO 1715.59 OF THE REVISED CODE RELATING TO THE 228
UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT. SPECIFICALLY, 229
NEITHER THE PERCENTAGE SET FORTH IN DIVISION (B) OF SECTION 231
1340.32 OF THE REVISED CODE NOR THE AMOUNT ACTUALLY REQUESTED BY 234
A GOVERNING BOARD PURSUANT TO SECTION 1340.32 OF THE REVISED CODE 235
SHALL BE CONSTRUED OR INTERPRETED TO LIMIT OR EXPAND WHAT IS A 236
PRUDENT AMOUNT THAT CAN BE EXPENDED BY A GOVERNING BOARD OF AN 238
INSTITUTION UNDER SECTIONS 1715.51 TO 1715.59 OF THE REVISED 241
CODE.
(B) IF AN INSTITUTIONAL TRUST FUND IS ALSO AN 243
INSTITUTIONAL FUND AS DEFINED IN DIVISION (B) OF SECTION 1715.51 247
OF THE REVISED CODE WITH THE RESULT THAT SECTIONS 1715.51 TO 250
1715.59 OF THE REVISED CODE ALSO ARE APPLICABLE TO THE 253
INSTITUTIONAL TRUST FUND, THEN SECTIONS 1715.51 TO 1715.59 OF THE 254
REVISED CODE APPLY TO THE INSTITUTIONAL TRUST FUND, AND SECTIONS 257
1340.31 TO 1340.37 OF THE REVISED CODE DO NOT APPLY TO THE 260
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INSTITUTIONAL TRUST FUND.
Sec. 1340.37. SECTIONS 1340.31 TO 1340.37 OF THE REVISED 264
CODE MAY BE CITED AS THE "INSTITUTIONAL TRUST FUNDS ACT." 265