(1) The committee may recommend for funding to those organizations which:

(a) provide verification of the inviolability of the endowment funds;

(b) are able to document their ability to match the grant within the grant period, and

(c) demonstrate a significant need and purpose for the challenge grant.

(2) Benefitting organizations must provide three dollars in cash or irrevocable planned or deferred gifts for each grant dollar.

(a) For purposes of qualifying as match, a deferred or planned gift must be:

(i) specifically designated for the endowment for unrestricted purposes,

(ii) executed during the grant period, and

(iii) not currently held in a permanent endowment account.

(b) All forms of deferred or planned giving will be valued according to IRS practices and principles except as otherwise noted. Deferred and planned gifts will qualify as matching funds only to the extent that they are legally irrevocable on the date of their valuation for such matching purposes.

(c) Donations of irrevocable trusts (e.g., pooled life income funds, charitable gift annuity trusts, unitrusts, etc.) will be eligible as match to the extent that their value can be determined in accordance with generally accepted accounting principles. It will be necessary to provide the Montana arts council with copies of the trust agreements and documentation of the value of such gifts.

(i) Charitable lead trusts: The income from these trusts will be counted as match when placed in the permanent endowment account.

(ii) Gifts of marketable securities will be eligible as match when they have been converted to cash and deposited in the benefitting organization's permanent endowment account. Documentation of this deposit must be furnished to the Montana arts council.

(iii) Gifts of real estate will be eligible as match when the property has been converted to cash and deposited in the benefitting organization's permanent endowment account. Documentation of this deposit must be furnished to the Montana arts council.

(iv) Income producing property: The annual average net income from the five years preceding the date of the application may be used to estimate the match for the grant period.

(A) Documentation of transfer of title or the agreement to make such income available to the applicant and the annual revenue for the five years previous to the date of application must be submitted to the Montana arts council.

(d) Life insurance will be eligible as match if the policy is owned by the charity, the charity is the beneficiary, and all premiums for the policy have been paid. Life insurance will be valued for matching purposes as follows:

(i) Where the insured is not a minor, the valuation is the minimum guaranteed death benefit of the paid-up portion of the policy. The benefitting organization will hold the policy until the death of the insured or until the cash value equals the minimum guaranteed death benefit.

(ii) Where the insured is a minor, the valuation is the cash value of the paid-up portion as of the last day of the grant period.

(e) Life estates and real property which is only the remainder interest in a residence, farm or ranch are eligible as match if the trust was executed during the grant period. If the trust was executed prior to the grant period and subsequently irrevocably assigned to the benefitting organization during the grant period, the match would be calculated as if it was created at the date of the assignment of the gift to the benefitting organization. The trust must be restricted for use in the benefitting organization's permanent endowment account. The property must be in Montana without lien and owned outright by the donor.

(f) Only cash gifted in a will, devise or bequest is eligible as match. The will, devise or bequest must indicate that the benefitting organization is the beneficiary, the amount or type of bequest, and that these funds will be deposited directly in the benefitting organization's permanent endowment account.

(3) Payment of challenge grants will be made upon the benefitting organization meeting the specified match requirement. Organizations which fail to meet the total match requirement within the grant period, will be eligible to receive that portion of the grant that has been matched. The review committee will be apprised of their inability to meet the total matching requirements.

(a) Benefitting organizations establishing permanent endowments may use available cash to meet the matching requirement.

(b) Benefitting organizations which have an existing permanent endowment must use funds not currently held in these endowments to meet part or all of the matching requirement.

(c) Matching funds must be placed in the permanent endowment on or after July 1 of the first fiscal year of the grant period and on or before June 30 of the last fiscal year of the grant period.

(d) Funds raised to match the challenge grant must not reduce the funds raised annually by the benefitting organization.   Information establishing base annual contributions will be requested in the application. Benefitting organizations will be required to submit:

(i) financial statements from the prior two fiscal years;

(ii) actual and budgeted expenses and income for the current fiscal year;

(iii) budgets for the grant period, and

(iv) detailed plans for raising the matching funds.

(e) challenge grants and their matching funds must be held as a permanent endowment with only earnings from investment for use in operations and programs or to add to the principal of the endowment. Grants and matching funds must be held inviolable. The challenge grant and matching funds may be held in either:

(i) a trust as authorized by Montana law;

(ii) an IRC 1.170A-9(e) community trust, fund or foundation incorporated in Montana; or

(iii) an IRC 501(c) (3) foundation established to support a university or college operated under the auspices of the Montana board of regents of higher education.

(f) Trustees will have and other authorized endowment holders shall observe the powers and duties as specified in 72-30-206, MCA.

(g) Documentation of the endowment agreement must be provided to the Montana arts council prior to release of grant funds which stipulates:

(i) that the endowment is inviolable;

(ii) the management fee to be charged;

(iii) any agreement concerning access to interest income;

(iv) that in the event of the dissolution of the grant recipient, within 30 days of dissolution, the grant recipient will inform the Montana arts council as to that dissolution;

(v) that the Montana arts council will inform the holder of the endowment account of the dissolution of the grantee;

(vi) that the holder will transfer an amount equal to the challenge grant and any undistributed interest income earned by that grant to the Montana arts council for reversion to the coal tax trust fund;

(vii) that if the holder of the endowment is a community trust, fund or foundation or foundation established to support a college or university operated under the auspices of the Montana board of regents of higher education, the Montana arts council encourages the foundation to use the matching funds and undistributed interest income earned by those funds to the organization undergoing dissolution to create or add to a "field of interest" fund for Montana arts and cultural organizations;

(viii) that if the holder of an endowment is an authorized trust agent, the matching funds and undistributed interest income earned by those funds of the benefitting organization undergoing dissolution will be distributed to the beneficiary named in the endowment agreement;

(ix) that the beneficiary is an organization within the state of Montana organized and operated exclusively for charitable, educational, religious or scientific purposes which shall at the time qualify as an exempt organization(s) under Section 501(c) (3) of the Internal Revenue Code of 1954 (or the corresponding provision of any future United States Internal Revenue Law) ;

(x) that the organization serves a similar purpose and geographic area as the organization undergoing dissolution;

(xi) that if no organization meets ARM 10.111.705(3) (g) (x) then an appropriate beneficiary is an organization which serves a similiar purpose as the organization undergoing dissolution;

(xii) if no organization meets ARM 10.111.705(3) (g) (xi) , then an appropriate beneficiary is an organization which is organized and operated exclusively for arts or cultural purposes;

(xiii) If no beneficiary is named, the holder of the endowment and board of the organization undergoing dissolution is required to contact the Montana arts council as to the distribution of these funds.