Just a short point raised today over negotiations on the establishment of a new endowment being given by a private foundation to a NY charity.

The foundation was proposing to override NYPMIFA’s invasion of principal feature and require maintaining the historic gift amount (NY fundraisers thought they were done with that!).

The email I received basically said: “I thought that the opt out only applied to existing endowments.”

My response:  Two separate issues.

Yes, there is an opt-out/notice provision for pre-existing endowments.  That’s not what we were discussing.

But, totally separate from that rule is a rule that always exists that allows drafters of endowment agreements to override some aspects of a state’s endowment management law.  UMIFA, UPMIFA and NYPMIFA all contain language stating that if you clearly state in an endowment contract that the invasion of principal and other features (of all of these laws) doesn’t apply to this fund, then it doesn’t apply.

In other words, a donor agreement can supersede state law – and the state law itself tells you how to do it!