As Reported by the Senate Finance and Financial 1 Institutions Committee 2 123rd General Assembly 5 Regular Session H. B. No. 161 6 1999-2000 7 REPRESENTATIVES WOMER BENJAMIN-MOTTLEY-TIBERI-HARRIS-BOGGS- 9 GERBERRY-JOLIVETTE-METELSKY-CALLENDER-VESPER-HARTNETT-OLMAN- 10 TRAKAS-ALLEN-SCHULER-PATTON-O'BRIEN-SULLIVAN-LOGAN-D.MILLER- 12 VAN VYVEN-HOLLISTER-CORBIN-BENDER-WILLAMOWSKI-GOODMAN-JONES- YOUNG-CLANCY-ROMAN-JACOBSON-EVANS-MAIER-SULZER-SALERNO-GARDNER- 13 MYERS-BUCHY-VERICH-DePIERO-BARNES-COUGHLIN-DAMSCHRODER-FLANNERY- 14 TERWILLEGER-THOMAS-CAREY-PERZ-AUSTRIA-BRITTON-BARRETT-MEAD- 15 WILSON-HOOPS-OPFER-SENATORS HOTTINGER-FINGERHUT- 16 PRENTISS-HERINGTON 17 _________________________________________________________________ 19 A B I L L To enact sections 1340.31 to 1340.37 of the Revised 21 Code to enact the "Institutional Trust Funds Act" 22 to define income and establish spending standards 23 for trust assets that are held for the benefit of charities. BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 25 Section 1. That sections 1340.31, 1340.32, 1340.33, 27 1340.34, 1340.35, 1340.36, and 1340.37 of the Revised Code be 28 enacted to read as follows: Sec. 1340.31. AS USED IN SECTIONS 1340.31 TO 1340.37 OF 32 THE REVISED CODE: (A) "INSTITUTION" MEANS AN INCORPORATED OR UNINCORPORATED 34 ORGANIZATION THAT IS ORGANIZED AND OPERATED EXCLUSIVELY FOR 36 EDUCATIONAL, RELIGIOUS, CHARITABLE, OR OTHER ELEEMOSYNARY 37 PURPOSES OR A GOVERNMENTAL ORGANIZATION TO THE EXTENT THAT IT 38 HOLDS FUNDS EXCLUSIVELY FOR ANY OF THOSE PURPOSES. (B) "GOVERNING BOARD" MEANS THE BODY RESPONSIBLE FOR THE 40 2 MANAGEMENT OF AN INSTITUTION. 42 (C) "INSTITUTIONAL TRUST FUND" MEANS A TRUST FUND, OR A 44 PART OF A TRUST FUND, THAT IS HELD BY A TRUSTEE FOR THE EXCLUSIVE 46 USE, BENEFIT, OR PURPOSES OF ONE OR MORE INSTITUTIONS AND THAT IS 47 NOT WHOLLY DISTRIBUTABLE TO THE INSTITUTION OR INSTITUTIONS ON A 48 CURRENT BASIS UNDER THE TERMS OF THE APPLICABLE TRUST INSTRUMENT. 49 "INSTITUTIONAL TRUST FUND" DOES NOT INCLUDE A FUND IN WHICH A 50 BENEFICIARY THAT IS NOT AN INSTITUTION HAS AN INTEREST OTHER THAN 51 A RIGHT THAT MAY ARISE UPON A VIOLATION OF A COVENANT UNDER THE TERMS OF THE APPLICABLE TRUST INSTRUMENT OR UPON A VIOLATION OF 52 OR THE FAILURE OF THE PURPOSES OF THE FUND. 53 (D) "APPLICABLE FUND VALUE" MEANS FOR ANY PARTICULAR 55 FISCAL YEAR THE SUM OF THE MONTH-END VALUES OF THE NET ASSETS OF 57 AN INSTITUTIONAL TRUST FUND FOR THE PRIOR FISCAL YEAR FOR THOSE 58 MONTHS IN WHICH THE INSTITUTIONAL TRUST FUND HAS BEEN IN 59 EXISTENCE DURING SUCH PRIOR FISCAL YEAR DIVIDED BY THE NUMBER OF 60 THOSE MONTHS. THE MONTH-END VALUES SHALL BE DETERMINED BY THE 61 TRUSTEE IN ACCORDANCE WITH THE TRUSTEE'S RECORDS, AND ANY SUCH 62 DETERMINATION MADE BY A TRUSTEE IN GOOD FAITH IS CONCLUSIVE. 63 (E) "TRUST INSTRUMENT" MEANS A TESTAMENTARY OR INTER VIVOS 65 TRUST UNDER WHICH THE TRUSTEE OF THE TRUST HOLDS AN INSTITUTIONAL 67 TRUST FUND. (F) "TRUSTEE" MEANS AN INDIVIDUAL, CORPORATION, 69 INSTITUTION, OR ORGANIZATION, INCLUDING, BUT NOT LIMITED TO, A 71 BANK, TRUST COMPANY, OR OTHER FINANCIAL INSTITUTION, SERVING AS A 72 TRUSTEE OR AS SOLE TRUSTEE UNDER A TRUST INSTRUMENT. "TRUSTEE" 74 INCLUDES AN ORIGINAL TRUSTEE AND ANY SUCCESSOR OR ADDED TRUSTEE. Sec. 1340.32. (A) SUBJECT TO DIVISION (D) OF THIS SECTION 78 AND SECTION 1340.33 OF THE REVISED CODE, DURING ANY FISCAL YEAR 80 IN WHICH INCOME MAY BE OR IS REQUIRED TO BE DISTRIBUTED TO AN 82 INSTITUTION FROM AN INSTITUTIONAL TRUST FUND, INCOME MEANS THE GREATER OF THE FOLLOWING: 83 (1) THE INCOME FROM THE ASSETS OF THE INSTITUTIONAL TRUST 85 FUND FOR THE FISCAL YEAR AS DETERMINED IN ACCORDANCE WITH THE 86 3 APPLICABLE TRUST INSTRUMENT AND APPLICABLE LAW WITHOUT REGARD TO 87 SECTIONS 1340.31 TO 1340.37 OF THE REVISED CODE; 88 (2) THE AMOUNT REQUESTED BY THE INSTITUTION'S GOVERNING 90 BOARD FOR THE FISCAL YEAR PURSUANT TO DIVISION (B) OF THIS 91 SECTION. (B) AN INSTITUTION'S GOVERNING BOARD MAY REQUEST THAT AN 93 AMOUNT BE DISTRIBUTED TO THE INSTITUTION FOR THE FISCAL YEAR, AND 94 THAT AMOUNT SHALL NOT EXCEED THE SUM OF BOTH OF THE FOLLOWING: 96 (1) FIVE PER CENT OF THE APPLICABLE FUND VALUE FOR THE 98 INSTITUTIONAL TRUST FUND FOR THE FISCAL YEAR; 101 (2) IF, IN ANY PRIOR FISCAL YEAR THAT IS AFTER THE 104 EFFECTIVE DATE OF THIS SECTION, THE GOVERNING BOARD REQUESTED 105 LESS THAN FIVE PER CENT OF THE APPLICABLE FUND VALUE FOR SUCH 106 PRIOR FISCAL YEAR AND IF THE AMOUNT THE INSTITUTION ACTUALLY 107 RECEIVED FROM THE INSTITUTIONAL TRUST FUND PURSUANT TO DIVISION 109 (A) OF THIS SECTION WAS LESS THAN FIVE PER CENT FOR SUCH PRIOR 110 FISCAL YEAR, THE AGGREGATE DIFFERENCE BETWEEN FIVE PER CENT OF 111 THE APPLICABLE FUND VALUE WITH RESPECT TO EACH SUCH PRIOR FISCAL 112 YEAR AND THE AMOUNT THE INSTITUTION ACTUALLY RECEIVED PURSUANT TO 113 DIVISION (A) OF THIS SECTION FOR SUCH PRIOR FISCAL YEAR. 114 (C) IF, UNDER A TRUST INSTRUMENT, MORE THAN ONE 116 INSTITUTION IS A BENEFICIARY OF AN INSTITUTIONAL TRUST FUND, THE 118 TRUSTEE SHALL TAKE SUCH ACTIONS THAT THE TRUSTEE DETERMINES 119 APPROPRIATE OR NECESSARY TO ALLOW FOR THE DISTRIBUTIONS OF INCOME AS CONTEMPLATED BY DIVISION (A) OF THIS SECTION, WHICH ACTIONS 120 MAY INCLUDE DIVIDING THE INSTITUTIONAL TRUST FUND INTO SEPARATE 123 SHARES ACCORDING TO THE INTEREST THAT EACH INSTITUTION HAS IN THE 124 TOTAL INSTITUTIONAL TRUST FUND HELD UNDER THE TRUST INSTRUMENT. 125 (D) THIS SECTION DOES NOT LIMIT THE AUTHORITY OR 127 OBLIGATION OF A TRUSTEE TO DISTRIBUTE, OR THE AUTHORITY OF A 129 GOVERNING BOARD TO REQUEST, FUNDS AS PERMITTED OR REQUIRED UNDER 130 THE TERMS OF THE APPLICABLE TRUST INSTRUMENT. 131 Sec. 1340.33. (A) DIVISION (A) OF SECTION 1340.32 OF THE 135 REVISED CODE DOES NOT APPLY IF THE APPLICABLE TRUST INSTRUMENT 136 4 EXPRESSLY INDICATES THE SETTLOR'S INTENTION THAT INCOME IS TO BE 137 OTHERWISE THAN AS DEFINED IN DIVISION (A) OF SECTION 1340.32 OF 139 THE REVISED CODE. (B) A RESTRICTION UPON THE DEFINITION OF INCOME IN 142 DIVISION (A) OF SECTION 1340.32 OF THE REVISED CODE MAY NOT BE 146 INFERRED FROM A DESIGNATION OF AN INSTITUTIONAL TRUST FUND AS AN 147 ENDOWMENT; A DIRECTION OR AUTHORIZATION IN THE APPLICABLE TRUST 149 INSTRUMENT TO USE ONLY "INCOME," "INTEREST," "DIVIDENDS," OR 150 "RENTS, ISSUES, OR PROFITS," OR "TO PRESERVE THE PRINCIPAL 151 INTACT," OR A DIRECTION THAT CONTAINS OTHER WORDS OF A SIMILAR 153 IMPORT; A DIRECTION IN A TRUST INSTRUMENT THAT INCOME AND 154 PRINCIPAL ARE TO BE DETERMINED BY REFERENCE TO CERTAIN STATUTORY 155 PROVISIONS; OR, SUBJECT TO DIVISION (A) OF THIS SECTION, THE 159 INCLUSION OF SPECIFIED PROVISIONS IN A TRUST INSTRUMENT SETTING 160 FORTH THE WAY IN WHICH INCOME AND PRINCIPAL ARE TO BE DETERMINED. 161 (C) THE RULE OF CONSTRUCTION SET FORTH IN DIVISION (B) OF 165 THIS SECTION APPLIES TO TRUST INSTRUMENTS EXECUTED OR IN EFFECT BEFORE, ON, OR AFTER THE EFFECTIVE DATE OF THIS SECTION. 166 Sec. 1340.34. (A) IN ADMINISTERING THE POWERS TO REQUEST 169 AMOUNTS FROM A TRUSTEE OF AN INSTITUTIONAL TRUST FUND IN 170 ACCORDANCE WITH DIVISIONS (A) AND (B) OF SECTION 1340.32 OF THE 173 REVISED CODE, MEMBERS OF A GOVERNING BOARD OF AN INSTITUTION 175 SHALL EXERCISE ORDINARY BUSINESS CARE AND PRUDENCE UNDER THE 177 FACTS AND CIRCUMSTANCES PREVAILING AT THE TIME OF THE ACTION OR 178 DECISION AND SHALL MAKE REQUESTS FOR AMOUNTS UNDER DIVISIONS (A) 179 AND (B) OF SECTION 1340.32 OF THE REVISED CODE ONLY AS IS PRUDENT 181 UNDER THIS STANDARD. IN SO DOING, THE GOVERNING BOARD SHALL 182 CONSIDER THE LONG- AND SHORT-TERM NEEDS OF THE INSTITUTION IN 183 CARRYING OUT ITS EDUCATIONAL, RELIGIOUS, CHARITABLE, OR OTHER 184 ELEEMOSYNARY PURPOSES; THE INSTITUTION'S PRESENT AND ANTICIPATED 185 FINANCIAL REQUIREMENTS; THE EXPECTED TOTAL RETURN ON THE 186 INVESTMENTS HELD BY THE INSTITUTION AND HELD BY THE TRUSTEE UNDER 188 THE APPLICABLE TRUST INSTRUMENT; PRICE LEVEL TRENDS; AND GENERAL ECONOMIC CONDITIONS. 190 5 (B) IN DETERMINING THE EXPECTED TOTAL RETURN ON THE 192 INVESTMENTS HELD BY A TRUSTEE OF AN INSTITUTIONAL TRUST FUND 193 UNDER THE APPLICABLE TRUST INSTRUMENT, THE MEMBERS OF THE 194 GOVERNING BOARD OF AN INSTITUTION MAY FOLLOW, AND ARE NOT 195 REQUIRED TO EXAMINE INDEPENDENTLY, THE DETERMINATION OF THE 196 TRUSTEE REGARDING THE EXPECTED TOTAL RETURN ON THE INVESTMENTS 197 HELD BY THE TRUSTEE. (C) A TRUSTEE OF AN INSTITUTIONAL TRUST FUND HAS NO DUTY 199 TO INQUIRE OR ASCERTAIN WHETHER THE GOVERNING BOARD OF AN 201 INSTITUTION HAS SATISFIED THE STANDARDS SET FORTH IN DIVISIONS 203 (A) AND (B) OF THIS SECTION, AND THE TRUSTEE DOES NOT HAVE ANY 206 LIABILITY FOR THE FAILURE OF THE GOVERNING BOARD TO SATISFY THOSE 208 STANDARDS. Sec. 1340.35. NOTHING IN SECTION 2109.67, SECTIONS 1340.01 210 TO 1340.13, OR ANY OTHER SECTION OF THE REVISED CODE LIMITS OR 215 RESTRICTS THE DEFINITION OF INCOME IN DIVISION (A) OF SECTION 217 1340.32 OF THE REVISED CODE OR LIMITS OR RESTRICTS A GOVERNING 220 BOARD OF AN INSTITUTION FROM REQUESTING, OR A TRUSTEE FROM 221 MAKING, DISTRIBUTIONS FROM AN INSTITUTIONAL TRUST FUND IN ACCORDANCE WITH SECTIONS 1340.31 TO 1340.37 OF THE REVISED CODE. 224 Sec. 1340.36. (A) NOTHING IN SECTIONS 1340.31 TO 1340.35 226 OF THE REVISED CODE AFFECTS THE CONSTRUCTION OR INTERPRETATION OF 229 SECTIONS 1715.51 TO 1715.59 OF THE REVISED CODE RELATING TO THE 233 UNIFORM MANAGEMENT OF INSTITUTIONAL FUNDS ACT. SPECIFICALLY, 234 NEITHER THE PERCENTAGE SET FORTH IN DIVISION (B) OF SECTION 236 1340.32 OF THE REVISED CODE NOR THE AMOUNT ACTUALLY REQUESTED BY 239 A GOVERNING BOARD PURSUANT TO SECTION 1340.32 OF THE REVISED CODE 240 SHALL BE CONSTRUED OR INTERPRETED TO LIMIT OR EXPAND WHAT IS A 241 PRUDENT AMOUNT THAT CAN BE EXPENDED BY A GOVERNING BOARD OF AN 243 INSTITUTION UNDER SECTIONS 1715.51 TO 1715.59 OF THE REVISED 246 CODE. (B) IF AN INSTITUTIONAL TRUST FUND IS ALSO AN 248 INSTITUTIONAL FUND AS DEFINED IN DIVISION (B) OF SECTION 1715.51 252 OF THE REVISED CODE WITH THE RESULT THAT SECTIONS 1715.51 TO 255 6 1715.59 OF THE REVISED CODE ALSO ARE APPLICABLE TO THE 258 INSTITUTIONAL TRUST FUND, THEN SECTIONS 1715.51 TO 1715.59 OF THE 259 REVISED CODE APPLY TO THE INSTITUTIONAL TRUST FUND, AND SECTIONS 262 1340.31 TO 1340.37 OF THE REVISED CODE DO NOT APPLY TO THE 265 INSTITUTIONAL TRUST FUND. Sec. 1340.37. SECTIONS 1340.31 TO 1340.37 OF THE REVISED 269 CODE MAY BE CITED AS THE "INSTITUTIONAL TRUST FUNDS ACT." 270