What is the UPMIFA?

Tax Professionals' Resource
August 16, 2012 — 1,571 views  
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The Uniform Prudent Management of Institutional Funds Act (UPMIFA) was developed in August 2006 by the Uniform Law Commission (UFL), a group that promotes uniformity of law. This organization spent four years developing the act, and it has remained a significant part of the law of nonprofit endowment investment government. It has been enacted or introduced in all but two U.S. states - Florida and Pennsylvania remain the only exceptions.

This regulation governs charitable institutions, placing them in line with current expenditure and investment practices. It is a revision to the Uniform Management of Institutional Funds Act of 1972.

Who does the act impact?

Nonprofit charitable entities are directly impacted by the act, as they must comply with specific principles to accept and distribute funds they receive. Financial assets must be used prudently in a collection of investments, as these could help an organization grow. Meanwhile, the appreciation on the aforementioned assets can be spent for the purposes of any endowment that is held by this organization.

What are the investment guidelines?

While these guidelines provide assistance to nonprofit charitable entities, nonprofit groups are allowed to invest in any kind of asset. They can pool endowment funds for investment purposes or put a specific person or group in charge of making decisions in this area.

The UPMIFA delivers guidance to these parties, as each person should make decisions "in good faith and with the care an ordinary prudent person in a like position would exercise under similar circumstances." There are several factors these people should review before making such choices, including present economic conditions, tax consequences and their future portfolio strategy.

This act states that investments must be diversified, so charitable organizations typically need to avoid putting all their eggs in one basket.

What does expending funds involve?

Nonprofit entities face no spending floor with the UPMIFA, as the act stipulates that "an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes and duration for which the endowment fund is establishment."

Several criteria have been created to provide guidance to these organizations, including legislation on the possible impact of deflation or inflation, the purposes of the institution and the endowment fund and the anticipated total return from income and the appreciation of investments. 

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