HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The State confers tax exempt status to
 2 charitable trusts and organizations because they provide needed
 3 public services which reduce the overall burdens of government.
 4 The people of this State, therefore, have a vested interest in
 5 the proper administration, operation and disposition of all
 6 property held for charitable purposes in this State, and shall be
 7 represented by the Attorney General in all courts of this State
 8 in respect of such property held by charitable trusts and
 9 organizations.
10      The purposes of this Act are: (1) to expressly extend the
11 Attorney General's powers and duties over charitable trusts to
12 all organizations and fiduciaries holding property for charitable
13 purposes, (2) to ensure that trustees and others holding property
14 for charitable purposes properly administer, register and report
15 on the existence of property held for charitable purposes to the
16 Attorney General, (3) to provide specific enforcement mechanisms
17 and rule-making authority for the Attorney General to carry-out
18 her common law supervisory powers and duties over charitable
19 trusts and organizations, and (4) to provide public access to the

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 1 administration and activities of charities in order to protect
 2 the public's interest.
 3      SECTION 2.  A new Chapter ___, Hawaii Revised Statutes, is
 4 added to be appropriately designated and to read as follows:
 5                           "CHAPTER ___
 7         -1  Short title.  This chapter shall be known and may be
 8 cited as the Uniform Supervision of Trustees for Charitable
 9 Purposes Act.
10         -2  Application of this chapter.  This Act applies to
11 any trustee, as defined in Section 3 of this Act.
12         -3  Definitions.  "Trustee" means any person,
13 individual, group of individuals, corporation, not-for-profit
14 corporation, unincorporated association, or other legal entity
15 holding property for any charitable purpose; or any chief
16 operating officer, director, executive director or owner of a
17 corporation or other organization holding property for a
18 charitable purpose.
19      "Charitable purpose" means any purpose to promote the well-
20 being of the public at large, or for the benefit of an indefinite
21 number of persons, including but not limited to educational,
22 literary, or scientific purposes, or for the prevention of
23 cruelty to children or animals, or for the benefit of religion,

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 1 rehabilitation services, public recreation or civic improvement.
 2      "Religious organization" means any church or group organized
 3 for religious purposes, including but not limited to divine
 4 worship or religious teaching.
 5         -4  Excluded entities.  This Act does not apply to the
 6 United States, any state, territory, or possession of the United
 7 States, the District of Columbia, the Commonwealth of Puerto
 8 Rico, or to any of their agencies or governmental subdivisions.
 9         -5  Entities exempted from registration and filing
10 requirements of this Act.  Unless requested by the Attorney
11 General, the registration, filing and reporting provisions under
12 Sections 6, 7, and 8 of this Act do not apply to: (a) any
13 religious organization that holds property for religious,
14 charitable, hospital or educational purposes, or for the purpose
15 of operating cemeteries or a home for the aged, or to any
16 officer, director, or trustee thereof who holds property in an
17 official capacity for like purposes, or (b) any trustee holding
18 property of a value less than $20,000 for a charitable purpose.
19         -6  Registration.  (a) Every trustee subject to this Act
20 who has received property for charitable purposes shall file a
21 registration statement with the Attorney General, within six
22 months after any part of the income or principal is authorized or
23 required to be applied to a charitable purpose, and prior to any

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 1 disbursements.
 2      (b) The registration statement shall include the following
 3 information: (1) name, address and telephone number of the
 4 charitable organization; (2) federal employer identification
 5 number; (3) type of legal entity; (4) name, address and telephone
 6 number of all trustees, officers, directors, chief executive or
 7 executive director; (5) person authorized to receive service of
 8 process; (6) address of all offices located within the State; (7)
 9 accounting period; (8) statement of purposes of the organization;
10 (9) information regarding whether any trustee, officer, director
11 or employee of the organization has ever been charged or
12 convicted of any crime involving fraud, or misuse or
13 misapplication of funds, or has ever been the subject of any
14 court proceeding in which a breach of fiduciary duty has been
15 alleged; (10) federal tax exempt status and any prior IRS audit
16 or cancellation of tax exemption; and (11) amount of income and
17 corpus, and (12) any other information as may be required by the
18 Attorney General.
19      (c) The registration statement shall be signed and verified
20 under penalty of perjury by 2 officers of a charitable
21 corporation or organization or by 2 trustees of a charitable
22 trust, provided that 1 signature will be accepted if there is
23 only one officer or trustee.  A registration fee of $15 shall be

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 1 paid with each initial registration.  If a trustee fails to
 2 maintain a registration of a trust or organization as required by
 3 this Act, and its registration is canceled as provided in this
 4 Act, and if that trust or organization remains in existence and
 5 by law is required to be registered, in order to re-register, a
 6 new registration must be filed accompanied by required financial
 7 reports and payment of the registration fee.
 8      (d) If a person or trustee fails to register or maintain
 9 registration of a trust or organization as provided in this
10 Section, the person or trustee is subject to injunction, to
11 removal, to account, and to appropriate other relief before a
12 circuit or probate court.  In the event of such action, the court
13 shall impose as an additional surcharge, a civil penalty of not
14 less than $500 and not more than $1,000 against any person or
15 trustee who fails to register or maintain registration required
16 under this Act.  The collected penalty shall be used for
17 charitable trust and organization enforcement and for providing
18 charitable trust information to the public, and deposited into
19 the fund established under Section 23.
20         -7  Filing of governing instruments.  (a) Every trustee
21 subject to this Act who has received property for charitable
22 purposes shall file and register with the Attorney General,
23 within six months after any part of the income or principal is

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 1 authorized or required to be applied to a charitable purpose, and
 2 prior to disbursements, a copy of the trust, articles of
 3 incorporation or other written instrument providing for the
 4 trustee's title, powers or duties.  In the event a trustee
 5 subject to this Act is holding property for charitable purposes
 6 under no such written instrument, such trustee nevertheless shall
 7 file, in lieu of such instrument, a statement in writing setting
 8 forth his title, powers and duties.  If any part of the income or
 9 principal is authorized or required to be applied to a charitable
10 purpose, whether a remainder interest or charitable lead
11 interest, at the time this Act takes effect, the filing shall be
12 made within six months after the effective date of this Act.
13      (b) If the settlor is still living, any trust which is
14 registered because it is a charitable lead or remainder trust and
15 the charitable interest has not matured, whether revocable or
16 irrevocable, may be registered as a confidential registration.  A
17 confidential registration means that the Attorney General shall
18 hold the file confidentially and not make any filing therein
19 public, unless necessary and pursuant to litigation.  The
20 Attorney General may disclose a confidential registration for
21 statistical purposes if all indications of name and identity are
22 redacted.
23         -8  Periodic annual reports; rules and regulations,

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 1 fees.  (a) Except as otherwise provided, every trustee shall file
 2 with the Attorney General at the time the organization's IRS tax
 3 return is due annual written reports under oath, setting forth:
 4           (1)  the IRS tax return of the charitable organization,
 5           (2)  the IRS tax returns of all majority-owned
 6                subsidiaries or other organizations, and
 7           (3)  such other information necessary or appropriate
 8                for the enforcement and supervision of, or public
 9                access to, the charitable organization as provided
10                by rule.
11      (b) The Attorney General may make rules and regulations as
12 to the time for filing reports, the contents thereof, and the
13 manner of executing and filing them.  The Attorney General may
14 classify trusts and other organizations concerning property held
15 for a charitable purpose as to purpose, nature of assets,
16 duration of the trust or organization, amount of assets, amounts
17 to be devoted to charitable purposes, nature of trustee, or
18 otherwise, and may establish different rules for the different
19 classes as to time and nature of the reports required to the ends
20 (1) that the Attorney General shall receive current, annual
21 reports as to all charitable trusts or other relationships of a
22 similar nature, which will enable the Attorney General to
23 ascertain whether they are being properly administered, and (2)

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 1 that periodic reports shall not unreasonably add to the expense
 2 of the administration of charitable trusts and organizations. The
 3 Attorney General may suspend the filing of reports as to a
 4 particular charitable trust or organization for a reasonable,
 5 specifically designated time upon written application of the
 6 trustee filed with the Attorney General, and after the Attorney
 7 General has filed in the register of charitable trusts a written
 8 statement that the interests of the beneficiaries will not be
 9 prejudiced thereby and that periodic reports are not required for
10 proper supervision by his office.
11      (c) The Attorney General may cancel the registration of any
12 trust or organization that wilfully fails to comply with
13 subsection (a) of this Section within the time prescribed, and
14 the assets of the organization may through court proceedings be
15 collected, debts paid and proceeds distributed under court
16 supervision to other charitable purposes upon an action filed by
17 the Attorney General as law and equity allow.  Upon timely
18 written request, the due date for filing may be extended by the
19 Attorney General for a period of 60 days.  Notice of registration
20 cancellation shall be mailed by regular mail to the registrant at
21 the registration filing address or to its registered agent or
22 president 21 days before the effective date of cancellation.
23 Trusts or organizations which submit reports after registration

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 1 has been canceled shall require re-registration.
 2      (d) Every trustee filing a report required by this Section
 3 shall pay to the fund established in Section 23, a fee based in
 4 part on the total income and receipts during the time covered by
 5 the report and in part on its fund balance at the close of the
 6 calendar or fiscal year adopted by the charitable trust or
 7 organization:
 8           (1)  The fee based on income and receipts shall be as
 9                follows:
10                (A)  $10, if income and receipts during the time
11                     covered by the report are less than $25,000;
12                (B)  $25, if $25,000 or more but less than
13                     $50,000;
14                (C)  $50, if $50,000 or more but less than
15                     $100,000;
16                (D)  $75, if $100,000 or more but less than
17                     $250,000;
18                (E)  $135, if $250,000 or more but less than
19                     $500,000;
20                (F)  $170, if $500,000 or more but less than
21                     $1,000,000; or
22                (G)  $200, if $1,000,000 or more.
23           (2)  The fee based on the fund balance shall be one-

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 1                hundredth of one percent of the fund balance,
 2                rounded off to the nearest whole dollar.  Any fund
 3                balance over $10 million shall not be subject to
 4                the fund balance fee.  No fee shall be due under
 5                this subsection is the fund balance is less than
 6                $50,000.  With respect to foreign trusts or
 7                organizations, only the fund balance held in
 8                Hawaii shall be subject to the fee due under this
 9                subsection.  For the purpose of calculating the
10                fee due under this subsection, the fund balance
11                shall not include the value of fixed assets held
12                for use in the operation of a charitable trust or
13                organization.
14      (e) If an annual report is not timely filed, a late filing
15 fee of $20 is imposed and shall be paid as a condition of filing
16 a late report.  Reports submitted without the proper fee shall
17 not be accepted for filing.
18         -9  Additional rules and regulations.  The Attorney
19 General may adopt rules and regulations necessary for the
20 administration of this chapter.
21         -10  Investigation.  The Attorney General may
22 investigate transactions and relationships of any trustee subject
23 to this Act for the purpose of determining whether the property

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 1 held for charitable purposes is properly administered, whether
 2 any trustee has violated any provision of this Act, or whether
 3 any trustee has breached a fiduciary duty.  The Attorney General
 4 may require any agent, trustee, fiduciary, beneficiary,
 5 institution, association, corporation, or other person to appear,
 6 at a named time and place, in the county designated by the
 7 Attorney General, where the person resides or is found, to give
 8 information under oath and to produce books, memoranda, papers,
 9 documents of title and evidence of assets, liabilities, receipts,
10 or disbursement in the possession or control of the person
11 ordered to appear.  Every trustee has the duty to provide to the
12 Attorney General all attorney-client information regarding the
13 administration of the charitable organization, excepting only
14 attorney-client information paid by the trustee from the
15 trustee's own funds for the trustee's own defense.
16         -11  Attendance of parties and witnesses; Order to
17 attend; hearings; witness fees.  When the Attorney General
18 requires the attendance of any person, as provided in this Act,
19 the Attorney General shall issue an order setting forth the time
20 when and the place where attendance is required and shall cause
21 the same to be served upon the person in the manner provided for
22 service of process in civil cases.  Such order shall have the
23 same force and effect as a subpoena and, upon application of the

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 1 Attorney General, obedience to the order may be enforced by the
 2 circuit or probate court in the county where the person receiving
 3 it resides or is found, in the same manner as though the notice
 4 were a subpoena.  The court may, in case of refusal to obey the
 5 order issued by the Attorney General, issue an order requiring
 6 such person to appear before the Attorney General or to produce
 7 documentary evidence, if so ordered, or to give evidence relating
 8 to the matter in question, and any failure to obey such order of
 9 the court may be punishable as a contempt of court.  Witnesses
10 ordered to appear shall be paid the same fees and mileage as are
11 paid witnesses in the circuit courts of this State, and court
12 reporters shall be entitled to the same fees as are paid for like
13 services in the circuit courts of this State.  The Attorney
14 General or his or her nominee shall be empowered to administer
15 the necessary oath or affirmation to such witnesses.
16         -12  Public inspection of register and reports.  Subject
17 to rules and regulations adopted by the Attorney General, the
18 register, copies of instruments, and the reports filed with the
19 Attorney General shall be open to public inspection.  Charitable
20 organizations shall be subject to Hawaii Revised Statutes chapter
21 92F because opening up the charitable processes to public
22 scrutiny and participation is the only viable and reasonable
23 method of protecting the public's interest.

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 1         -13  Powers of the Attorney General; jurisdiction of
 2 court.  The Attorney General may institute appropriate
 3 proceedings to secure compliance with this Act and to invoke the
 4 jurisdiction of the court.  The powers and duties of the Attorney
 5 General provided in this Act are in addition to existing powers
 6 and duties.  Nothing in this chapter shall impair or restrict the
 7 jurisdiction of any court with respect to any of the matters
 8 covered by it, except that no court shall have the jurisdiction
 9 to modify or terminate any trust of property for charitable
10 purposes unless the Attorney General is a party to the
11 proceedings.  Every charitable organization with more than
12 $500,000 in annual income or $5 million in assets shall be
13 subject to the supervisory power of the probate court and
14 required to account to the probate court in the manner provided
15 by Hawaii Revised Statutes section 554-4.  Failure without good
16 cause to comply with any order of any court shall constitute
17 grounds for removal of the officers and directors of a charitable
18 organization or trustees of a charitable trust and the
19 appointment by the court of successor officers and directors or
20 trustees.
21         -14  Custodians to furnish copies of instruments.  Every
22 person who offers for probate any instrument which establishes a
23 testamentary trust of property for charitable purposes or who

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 1 records in any county or city and county any inter vivos transfer
 2 of property for charitable purposes shall furnish a copy of such
 3 document to the Attorney General.  The custodian of the records
 4 of a court having jurisdiction of charitable trusts shall furnish
 5 such copies of papers, records and files of his office relating
 6 to the subject of this Act as the Attorney General requires.
 7         -15  Duties of tax authorities.  Every officer, agency,
 8 board, or commission of this State receiving applications for
 9 exemption from taxation of any charitable trust or organization
10 in which the trustee is subject to this Act shall annually file
11 with the Attorney General a list of all applications received
12 during the year.  Notwithstanding any confidentiality provisions
13 to the contrary, every taxing authority of the State, or its
14 agencies or political subdivisions, shall make available to the
15 Attorney General for inspection and copying all tax returns and
16 return information of all charitable organizations.
17         -16  Recovery of expenses by the State.  In any
18 proceeding in any court concerning a charitable trust or
19 organization brought by the Attorney General seeking enforcement
20 or compliance with the provisions of this Act, the court having
21 jurisdiction of such proceedings may require the payment of all
22 attorneys' fees and reasonable and necessary expenses incurred by
23 the Attorney General from the corpus or income, or both, of the

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 1 trust or organization, in such reasonable amounts as the court
 2 may order.  Necessary expenses include but are not limited to the
 3 costs of auditors, consultants, and experts employed or retained
 4 to assist with the investigation, preparation, and presentation
 5 in court of the charitable trust or organization enforcement
 6 action.
 7         -17  Injunctive relief. In any action in which the
 8 Attorney General alleges that a charitable trust or organization
 9 needs to be protected or the trustees of a charitable trust or
10 organization have breached their fiduciary duties, and injunctive
11 relief and removal of trustees is sought, the circuit or probate
12 courts shall exercise their discretion as the equities require
13 and may, as a part of injunctive relief, and after a hearing
14 where the trustees shall have an opportunity to be heard, appoint
15 temporarily or permanently a receiver or additional trustees to
16 protect and operate the trust or organization and may
17 temporarily, or as ultimate relief for breach of duty or to
18 protect the trust or organization, permanently remove any
19 trustee, officer, director or member from office and appoint
20 replacements to protect the public interest.  The public interest
21 is paramount and the stewardship of a charitable organization is
22 a privilege to serve as a fiduciary for the public good.
23         -18  Breach of fiduciary duty; liability. (a) If any

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 1 trustee of a charitable trust or organization commits a breach of
 2 fiduciary duty, the trustee, individually, is chargeable with any
 3 of the following that is appropriate under the circumstances:
 4           (1)  Any loss or depreciation in value of the trust or
 5                organization's property resulting from the breach
 6                of fiduciary duty, with interest.
 7           (2)  Any profit made by the trustee through the breach
 8                of fiduciary duty, with interest.
 9           (3)  Any profit that would have accrued to the trust or
10                organization if the loss of profit is the result
11                of the breach of fiduciary.
12      (b) If the trustee is liable for interest under this
13 Section, the liability shall be the greater of the following
14 amounts:
15           (1)  The amount of interest that accrues at the legal
16                rate on judgments in effect during the period when
17                the interest accrued.
18           (2)  The amount of interest actually received.
19         -19  Prohibition against personal benefit or use of
20 funds. Any trustee who without lawful authority, in violation of
21 the trust or organization purposes or by intentional breach of
22 fiduciary duty, intentionally disburses or causes charitable
23 funds to be used for the trustee's personal benefit or use in an

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 1 amount in excess of $1,000 within a 5 year period is guilty of a
 2 Class C felony and is subject to the sentencing provisions of
 3 Hawaii Revised Statutes Section 706-660 and is subject to a civil
 4 penalty of up to $50,000 for each violation.
 5         -20  Punitive damages.  In addition to any other
 6 remedies available at law or equity, any person who,
 7 intentionally and with malice breaches any fiduciary duty is
 8 subject to punitive damages in an appropriate amount upon a trial
 9 on the issue.
10         -21  Court approval required; deviation or modification;
11 transfer of assets; termination.  A trustee must obtain the
12 approval of the probate court in order to: (a) deviate from or
13 modify the governing instrument of a charitable organization; (b)
14 transfer the assets to another organization as a part of any
15 reorganization of the charitable organization; or (c) terminate a
16 charitable organization.
17         -22  Copies of registration materials or financial
18 documents.  All copies of registration materials or financial
19 documents filed with the Attorney General pursuant to the
20 provisions of this Act shall, when certified by the Attorney
21 General, be taken and received in all courts, public offices and
22 official bodies as business records of the filer.
23         -23  Hawaii Charitable Trust and Organization Fund.

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 1 There is created in the State general fund the Hawaii Charitable
 2 Trust and Organization Fund.  All fees and penalties collected by
 3 the Attorney General pursuant to this Act shall be deposited in
 4 the Hawaii Charitable Trust and Organization Fund.  Moneys in the
 5 Fund shall be appropriated to the Attorney General for charitable
 6 trust enforcement purposes and dissemination of public
 7 information.
 8         -24  Severability. If any provision of this Act or the
 9 application thereof to any person or circumstance is held
10 invalid, the invalidity shall not affect other provisions or
11 applications of the Act which can be given effect without the
12 invalid provision or application, and to this end the provisions
13 of the Act are severable.
14         -25  Contrary provisions invalid.  This Act shall apply
15 regardless of any contrary provisions of any instrument.
16         -26  Uniformity of interpretation.  This Act shall be so
17 construed as to effectuate its general purpose to make uniform
18 the law of those states which enact it.
19      SECTION 3.  There is appropriated out of the general
20 revenues of the State of Hawaii the sum of $100,000, or so much
21 thereof as may be necessary for fiscal years 1999-2002, and
22 $100,000 thereof as may be necessary for fiscal year 2000-2001.
23      SECTION 4.  The sum appropriated shall be expended by the

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 1 Department of the Attorney General.
 2      SECTION 5.  New statutory material is underscored.  
 3      SECTION 6.  This Act shall take effect upon its approval.
 5                           INTRODUCED BY:  _______________________

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