Permanent Endowment is a Long TimeMay 10, 2012
Old rules, new laws. How to handle new changes in endowments.
In early March there was an article in the Wall Street Journal about an endowment issue playing out in Ipswich, MA. It seems that a wealthy merchant named William Paine left 35 acres of land in his will to the “free schools of Ipswich”. He said the land should never be sold and should be used forever for the benefit of the Ipswich public schools. This happened in 1660!
A board of 7 trustees has governed the property for the past 351 years. Over the years the purpose of the bequest – benefiting the Ipswich public schools – has evolved wherein the seaside land is now rented to people who have built small summer cottages. The rental income is turned over to the Ipswich public school system. Now the board wants to sell the land for approximately $32.5 million (a good price, it would seem) and create an investment-based endowment for the Ipswich public schools.
Although this plan was approved by the Essex Probate Court, some Ipswich residents are disputing the Trust’s ability to enter into such a transaction. They claim that the trustees do not have the right to deviate from the terms of the gift instrument. They question what value there is in a permanently restricted gift if there is no guarantee that the donor’s wishes will be honored. Interesting questions that will be addressed by a Massachusetts Court of Appeals sometime this year.
This is just a brief glimpse into the frequently confusing world of permanent endowments. The world of endowment management and endowment gifts, one which has existed for hundreds of years, was once governed by a body of lore with very little law supporting it. However, over the past 40 years or so more and more laws have been put on the books, culminating in the recently passed Massachusetts Prudent Management of Institutional Funds Act (MPMIFA). Many portions of the law are quite different from the hundreds of years of lore, and as with most laws, the passage of the Act and widespread compliance with the Act is frequently separated by long periods of time – a potentially dangerous situation for those who may still be acting according to lore. If your organization has permanently restricted endowment funds, full knowledge of the MPMIFA is critical.
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