Who’s in Charge of Nonprofit Funds? A Practical Guide to UPMIFA for Nonprofit Leaders
UPMIFA governs how nonprofits manage and spend donated funds
It applies to both investment decisions and donor-restricted gifts
Nonprofit leaders must follow duties of loyalty, care, and prudence
Donor restrictions are enforceable when clearly documented
Restrictions can be modified in certain cases, often with donor or court approval
State-specific laws matter, so legal guidance is essential
Understanding UPMIFA and Why It Matters for Nonprofits
Nonprofits depend on charitable giving to move their mission forward. But when donations come with conditions or need to be invested before use, legal responsibilities follow. That is where the Uniform Prudent Management of Institutional Funds Act, or UPMIFA, comes in.
UPMIFA is not a federal law. It is a model framework adopted in some form by nearly every state. For nonprofit leaders, this means your organization is likely subject to UPMIFA-based rules governing how funds are managed and spent.
At its core, UPMIFA addresses two critical areas: how nonprofits invest their assets and how they handle donor-imposed restrictions.
How Nonprofits Are Expected to Manage and Invest Funds
UPMIFA sets clear expectations for how nonprofit leaders handle financial resources, regardless of whether those funds are restricted.
Those responsible for managing funds must follow two key fiduciary duties:
Duty of loyalty: Act in the best interest of the nonprofit, not personal interests
Duty of care: Make decisions with the same level of care a prudent person would use in a similar situation
Beyond these general standards, UPMIFA outlines specific investment responsibilities:
Evaluate investments before committing funds
Consider how each decision affects the entire portfolio
Diversify assets unless there is a strong reason not to
Factor in economic conditions, tax implications, and organizational needs
These rules are designed to protect the long-term sustainability of the nonprofit, not just short-term outcomes.
What Counts as a Donor Restriction Under UPMIFA
Many nonprofits receive donations tied to specific purposes. UPMIFA guides on when those restrictions are legally binding.
A restriction must be documented in a gift instrument, which can include:
Donation checks with written instructions
Grant or gift agreements
Wills or deeds
Emails or digital communications
Even internal records like board meeting minutes
In some cases, a nonprofit’s own fundraising materials can create a restriction. For example, if a campaign clearly states funds will support a specific program, those donations must be used accordingly.
However, not every donor comment creates a legal obligation. General expressions of support are typically not enforceable unless they clearly limit how funds should be used.
When Donor Restrictions Become a Problem
Over time, donor restrictions can become outdated, impractical, or even impossible to fulfill. For example, a donation designated for a project in a specific location may no longer be viable due to zoning changes or community needs. Without flexibility, these funds could remain unused, limiting the organization’s ability to carry out its mission.
UPMIFA provides several pathways to address this:
Donor agreement: The nonprofit can request permission from the donor to modify or remove the restriction
Court approval: A court can approve changes, typically with notice to the state Attorney General
Unilateral action: In limited situations, nonprofits can modify certain restrictions with proper notice
Each option comes with legal requirements, and the appropriate approach depends on the situation and applicable state law.
Why State Law Still Plays a Critical Role
While UPMIFA provides a consistent framework, each state adopts and modifies it differently. That means the exact rules your nonprofit must follow can vary depending on where you operate.
Nonprofit leaders cannot rely on general assumptions. Decisions about investing funds or handling donor restrictions should always consider state-specific requirements.
Failing to comply can lead to:
Regulatory scrutiny
Financial penalties
Loss of donor trust
Delays in executing your mission
Understanding how UPMIFA applies in your state is essential for protecting both your organization and its impact.
Moving Forward with Confidence
Managing nonprofit funds is not just about good intentions. It requires careful attention to legal standards that protect both the organization and its donors.
If your organization is navigating donor restrictions, investment decisions, or compliance questions under UPMIFA, it is worth getting clarity before moving forward. At Church & Charity Law, we have worked with nonprofit organizations for decades, helping leaders stay compliant while focusing on their mission.
If you need guidance on how UPMIFA applies to your organization, schedule a consultation today!