May 11, 2021

Washington State Updates Nonprofit Law Consistent With UPMIFA

Washington State Governor Inslee recently signed SB 5034 into law. The law completely replaces the current form of the Washington Nonprofit Act, which was adopted in 1967, with more modernized provisions.

The new version of the Nonprofit Act covers donor-restricted institutional funds held by nonprofit corporations, which were previously regulated under trust law (Chapter 11.110 RCW “Charitable Trusts”). These changes are designed to conform to Washington’s version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), located at Chapter 24.55 RCW.

Sections 1501 through 1506 of the law apply to unrestricted and restricted gifts made to nonprofit corporations. These provisions distinguish between charitable gifts and charitable trusts, and they further outline the procedures for modifying and releasing gift restrictions.

The law also sets forth comprehensive governance provisions for nonprofits. For example, it prevents nonprofits from taking certain corporate actions such as amending their bylaws or articles of organization, and approving a merger or dissolution unless the modification occurs pursuant to certain procedures.

Nonprofit entities have until January 1, 2022 (the effective date) to ensure they are compliant with these new provisions. However, corporations can elect to use and manage their gift-restricted assets under current law for a one-year grace period that will end on January 1, 2023.

For More Information

Nonprofits that hold assets subject to donor-imposed restrictions should contact Faegre Drinker’s Private Client team to review their policies and procedures and ensure compliance.

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