Is the Law Causing Charities to Drown because Their Endowment Funds are Now Under Water

Abstract

INTRODUCTION|Like the rest of society, charitable institutions, from animal shelters to universities, have been suffering the effects of a major downturn in the economy not seen since the Great Depression. Unfortunately, charitable institutions may have their suffering compounded by laws or legal interpretations of them governing the management of their endowment funds.|One unfamiliar with the arcane legal aspects of this problem might think that endowment funds would be just the sort of cushion that charities would need to see them through difficult economic times. On the contrary, however, some people involved with the management of charitable endowment funds or otherwise involved with the laws or interpretation of them were of the opinion that, in many cases, permanent endowment funds cannot be used during this difficult period, because they are "under water." By this, they mean that the assets, in today's market, are valued substantially less than the value of the assets originally contributed when the endowment fund was established (also taking into consideration the value of subsequent contributions at the time or times they may have been made). Further, some people concluded that if a fund is "under water," then said fund, including any income generated by said fund, may not be used to support the intended charity until such time as the value of the fund as when contributed re-emerges from the troubled financial waters. In other words, before a fund can be used to support its intended charity, its dollar value would have to equal or exceed the dollar value of assets when contributed to it, originally and subsequently...