Overview

With the advent of the new year, the Washington Nonprofit Corporations Act (RCW 24.03A) is now in full force and effect. While much discussion has already been devoted to specific governance changes to member and non-member organizations, we have yet to address how charitable assets will be managed under the new act. In this post we’ll discuss three major changes and provisions under the new Act that directly effect the management of charitable assets held by a nonprofit corporation in Washington.

To start this discussion, it’s helpful to understand what a charitable asset is. The new Act refers to charitable assets as “property held for a charitable purpose.” Property held for a charitable purpose is defined as such if it meets any of the three below definitions:

1. The property is held by a nonprofit corporation that is a charitable corporation;
2. The property is subject to restrictions contained in a gift instrument that limit its use only to one or more charitable purposes; or
3. The property is subject to restrictions contained in the corporation’s articles, bylaws, or any record adopted by the corporation’s board, or to other limitations in the form of a record, that limit its use only to one or more charitable purposes.

If your organization holds assets that meet any of the above definitions then the assets can be considered charitable assets or “property held for a charitable purpose” for purposes of the statute.

Protection of Charitable Assets

The protection of charitable assets is a major focus of the new Act’s changes.

First, the new Act focuses on governing procedures and treatment of restricted gifts. The intent of these provisions is to bring the management of restricted gifts into compliance with Washington’s Uniform Prudent Management of Institutional Funds Act (UPMIFA), which we have discussed previously. The law also governs how restrictions on gifts can be changed or amended and how restricted gifts should be treated at dissolution. Under the new Act, restrictions on a restricted gift can be released or amended without need for Court approval so long as appropriate procedures are followed and approvals are obtained. This ultimately gives organizations more flexibility in their management of restricted gifts than the previous Act gave.

Mandates

Next, the new Act mandates that a nonprofit corporation report changes to its charitable purposes and/or programs on its annual report that it submits to the Secretary of State’s office. This, in turn, gives the Washington State Attorney General much more clear guidance associated with enforcing the use of charitable assets for charitable purposes. This change will essentially give organizations more predictability and foreknowledge in terms of how to report major changes to charitable purposes and how possible investigations will take place regarding how charitable assets are used and handled.

Finally (but not exhaustively), the new Act requires an additional fee to be paid with the annual report. The additional fee is $10 for organization with gross revenue under $500,000 and $50 for organization with gross revenue of $500,000 or more. This new fee is to fund a new Charitable Asset Protection Account which will be used by the Washington State Attorney General and Secretary of State for education and enforcement efforts relating to charitable asset protection.

This blog is for educational purposes only and does not constitute legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. Any business applying for certification should ensure the business has the appropriate ownership and operating documents in place. Speak to a licensed attorney if you need help or advice in how your organization should be managing charitable assets in light of the new Act. If you have any questions or would like to learn more, please contact Jacob Ferrari at jacob@apexlg.com or visit our website.