Introduction
Strong governance is essential to the success of any nonprofit organization. Board members hold fiduciary responsibilities that require informed oversight, transparency, and accountability. For organizations managing endowments or other charitable funds, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) provides the legal framework that governs spending, investing, and preserving donor-restricted assets.
UPMIFA, adopted in 49 states and the District of Columbia, replaces the older UMIFA (Uniform Management of Institutional Funds Act) and brings modern standards of care, flexibility, and financial prudence to charitable fund management.
Fiduciary Duties of Nonprofit Board Members
Nonprofit board members are bound by three core fiduciary duties:
1. Duty of Care
Board members must act with the care an ordinarily prudent person would exercise in a similar position. This includes reviewing financial reports, understanding the organization’s programs, and overseeing its strategic direction.
2. Duty of Loyalty
This duty requires board members to act in the best interest of the nonprofit, avoiding conflicts of interest and ensuring personal or professional interests do not compromise decision-making.
3. Duty of Obedience
Board members must ensure the organization adheres to its mission and complies with all applicable laws and regulations, including donor intent and spending rules governed by UPMIFA.
(See: National Council of Nonprofits, “Board Roles and Responsibilities,” https://www.councilofnonprofits.org)
UPMIFA: Legal Framework for Charitable Funds
UPMIFA provides guidance for how nonprofits manage and spend institutional funds, particularly endowments. It outlines how organizations should balance the goal of long-term fund preservation with the need to support current mission-driven expenditures.
1. Authority to Spend
UPMIFA allows an institution to appropriate for expenditure as much of an endowment fund as it determines to be prudent, considering a number of factors. Importantly, UPMIFA removes the historic dollar value restriction, allowing organizations to spend below the original gift amount if done prudently and in line with donor intent.
(Uniform Prudent Management of Institutional Funds Act, 2006. Uniform Law Commission. https://www.uniformlaws.org)
2. Seven Spending Factors
UPMIFA requires boards to consider the following seven factors when making appropriation decisions:
- Duration and preservation of the fund
- Purpose of the institution and the fund
- General economic conditions
- Effect of inflation or deflation
- Expected total return (income and appreciation)
- Other resources of the institution
- Investment policy of the organization
(UPMIFA §4(a), Uniform Law Commission)
These factors must be evaluated in good faith and documented as part of the board's deliberation process.
3. Rebuttable Presumption of Imprudence
Most states that have adopted UPMIFA also include Section 4(d), which establishes a rebuttable presumption that spending more than 7% of an endowment’s average market value (over the previous three years) is imprudent. While this is not a hard cap, boards that exceed this threshold must justify the decision with documentation and reference to the seven factors above.
“Spending more than seven percent... creates a rebuttable presumption of imprudence.”
— Gene Takagi, NEO Law Group, Spending from an Endowment, https://nonprofitlawblog.com/spending-from-an-endowment/
Organizations must also disclose their endowment spending policy in the footnotes to their audited financial statements, ensuring transparency to stakeholders and donors.
Governance Best Practices Under UPMIFA
Document Decision-Making
Boards should maintain clear records of how endowment spending decisions are made, including minutes of meetings, supporting analysis, and references to donor restrictions.
Educate and Engage Board Members
All board members should receive orientation and ongoing training on UPMIFA, fiduciary responsibilities, and endowment oversight. This builds institutional memory and reinforces accountability.
Monitor Performance and Revisit Policies
A board’s investment and spending policies should be reviewed annually, or sooner if financial conditions or organizational needs change. A prudent board must be ready to adjust if market downturns or mission shifts call for rebalancing.
Align Investment Policy with Spending Policy
The Investment Policy Statement (IPS) should be crafted with UPMIFA principles in mind. It should include asset allocation ranges, rebalancing rules, and spending guidelines rooted in the seven factors. Boards should coordinate their IPS with fundraising and gift acceptance policies to ensure consistency across departments.
Handling Donor Restrictions
UPMIFA recognizes the primacy of donor intent. If a gift instrument specifies a unique spending restriction (e.g., “do not spend principal”), that restriction overrides the default UPMIFA rules. However, if circumstances make compliance impracticable or obsolete, UPMIFA allows for modification — through court petition or with the donor’s consent — to better serve charitable purposes.
This flexibility is essential when managing long-standing funds in changing conditions. Nonetheless, discretion must be used carefully and with legal guidance.
(See: UPMIFA §6 and Nonprofit Law Blog, “Spending from an Endowment,” https://nonprofitlawblog.com/spending-from-an-endowment/)
Current Trends and Considerations
Recent social, environmental, and public health crises have prompted renewed debate about how nonprofits balance preservation vs. action. UPMIFA gives boards the authority to respond to urgent needs — such as pandemic relief, climate change, or community justice — but only through a deliberative and well-documented process.
“We’re left with intriguing questions about how much more than the presumptive spending limit would be justified by a charity’s desire to address... climate change or urgent threats to democracy.”
— Gene Takagi, NEO Law Group
Boards are encouraged to revisit their values, investment philosophy, and spending policy to align with evolving mission-driven imperatives.
Conclusion
UPMIFA offers nonprofit boards both flexibility and accountability. When board members fulfill their fiduciary obligations, evaluate spending decisions through the lens of prudence, and document their rationale, they can confidently steward endowment resources for both present impact and long-term mission success.
At Farther, we guide nonprofits through the complexities of endowment governance, UPMIFA compliance, and investment management — ensuring that every decision upholds donor intent and maximizes mission effectiveness.
About Farther
Farther is a modern wealth management firm supporting nonprofits, families, and institutions with sophisticated planning and investment strategies. Our nonprofit advisory team partners with boards and finance committees to develop and implement UPMIFA-aligned investment policies, sustainable endowment strategies, and transparent financial governance frameworks.
Citations
- Uniform Prudent Management of Institutional Funds Act (UPMIFA), Uniform Law Commission. https://www.uniformlaws.org
- Gene Takagi, “Spending from an Endowment,” Nonprofit Law Blog, NEO Law Group, September 2024. https://nonprofitlawblog.com/spending-from-an-endowment/
- National Council of Nonprofits, “Board Roles and Responsibilities.” https://www.councilofnonprofits.org
- “What Your Board Needs to Know About UPMIFA,” FutureEd Finance. https://www.futuredfinance.com/what-does-your-board-need-to-know-about-upmifa/
NACUBO, “Endowment Management,” National Association of College and University Business Officers. https://www.nacubo.org
