In reviewing a copy of the Institutes financial statement at the June 2022 board meeting, Ms. Dugan
Question:
In reviewing a copy of the Institute’s financial statement at the June 2022 board meeting, Ms. Dugan— who joined the Board in September 2021, the same month in which you assumed your role as Executive Director—noticed a $600,000 asset described as “the Klein Endowment Fund.” Ms. Dugan asked for information about the Fund. Various members of the Board explained that the Fund was established in early 2020 after the death of Stanley Klein, a Pulitzer-prize-winning composer of avant-garde music, whose will included the following provision:
I hereby devise and bequeath the remainder of my property, of every description and wherever located, that I now own or may acquire, to the New York Institute for Contemporary Arts, located in Brooklyn, New York, for the purpose of constructing and operating a contemporary art facility in Buffalo, New York that is identical to the organization’s Brooklyn facility, in order to bring all forms of contemporary visual and performing arts to students, emerging artists, and the general public in Western New York.
Unfortunately, the Buffalo facility was never built because the residue of Mr. Klein’s estate was only $850,000—not enough to cover the construction expense, let alone operate the facility, and the Institute was unable to raise sufficient additional funds from other sources to undertake the project.
You then ask the Board why the balance in the Fund is now only $600,000, and are told that, from time to time over the last fifteen months, the Institute needed to use some of the Fund to pay for its Brooklyn operations.
You listen to this explanation in troubled silence, deciding to look into the use of the Fund and do a full damage assessment before addressing it further with the Board. Ms. Dugan pulls you aside after the meeting for a private conversation about the Fund. Recalling Princeton’s lengthy and very public dispute with the Robertson family over the interpretation of a restricted gift, she is fearful that Mr. Klein’s children will sue the Institute at any moment (and takes great comfort in the fact that the Institute has in place a standard directors’ and officers’ liability insurance policy).
After the Board meeting, Ms. Dugan emails you (copying the other directors) to ask whether there is anything the Institute can do to free up the restriction on the use of the Klein Endowment Fund, which seems impossible to fulfill.
Question
Please provide a brief written response to Ms. Dugan’s question, which she can share with the full Board. As part of your response, be sure to address:
What options might the Institute consider regarding the Fund in light of the fact that it is impossible to fulfill Mr. Klein’s intent in the manner he directed? What legal process would be required for each of the options you discuss in your response?
What should the Institute do to mitigate the damages from the use of a portion of the Fund for Brooklyn operations when the Institute gives required notice to the Attorney General of the impossibility of fulfilling Mr. Klein’s intent in the manner he directed?
What questions should you anticipate from the Attorney General, and why?
Financial Accounting Tools for Business Decision Making
ISBN: 978-0470239803
5th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso