Real Estate Gifts: For Boomers, It May Be the Real Thing Page 2

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1 March 2016 Vol. 49 No. 3 IDEAS AND INSIGHTS FROM SHARPE GROUP Real Estate Gifts: For Boomers, It May Be the Real Thing Page 2 WASHINGTON ATLANTA MEMPHIS SAN FRANCISCO Gift Planning Toolbox in San Francisco, March 29-30, 2016 Help Your Donors Understand the Value of Noncash Gifts A Prescription for Gift Receipts PAGE 5 PAGE 6 PAGE 7

2 Real Estate Gifts: For Boomers, It May Be the Real Thing by Robert F. Sharpe, Jr. Born in 1946, the oldest baby boomers are turning 70 this year. Through sheer numbers, boomers through the decades have made their mark on all aspects of finance, industry and popular culture. Now that they are entering the prime age for making major gifts, we should expect them to make an equally significant impact on the philanthropic landscape. The big Rs: retirement plans and real estate The estimated 76 million boomers are the first generation to pursue nearly their entire working careers contributing to 401(k) plans, individual retirement accounts and other income tax deferral savings plans created by Congress in the late 1970s in contemplation of the baby boomer retirement wave that s now intensifying. As a result, many individuals in their prime earning (and giving) years now hold a substantial portion of their net worth in these qualified, tax-deferred accounts. For many boomers, the bulk of their other assets is comprised of equity in their homes and other real estate they own. With the majority of their assets held in this manner, fewer among the 70 and over age group may be prospects for charitable gifts of securities and other financial assets than was the case with earlier generations where donors held significant investment portfolios outside their retirement plans. Charitable IRAs to the rescue? While Congress acted in December 2015 to make permanent legislation allowing individuals aged 70½ and older to make tax-free gifts from their IRAs, the bulk of qualified retirement plan assets are held by individuals under the age of 70½, and/or in 401(k), 403(b) and other plans from which it s not possible for those of any age to make gifts directly to charity. Many seeking major gifts from boomers are beginning to realize that the bulk of many boomers assets are locked up in retirement accounts and that it will be increasingly important to encourage gifts from other assets such as real estate. Getting grounded in real estate gifts For those working with boomers, now may be a good time to review how real estate can be used to make charitable gifts, including the basic tax and financial benefits that can accompany such gifts. Gifts of real estate can result in significant tax savings, but they vary depending on the way the gift is made, what interests may be retained and other factors. For example, real estate can be given outright or may be given in ways that provide some benefit to the donor or someone else the donor chooses; such benefits can include the generation of income or the right to use the property for life or another specified period of time. Let s briefly review a number of ways real estate can be used to make charitable gifts and summarize the possible tax and other financial benefits to the donor. Outright gifts Perhaps the most common way to make a gift of real estate is through an outright donation. In these cases, the donor is allowed a charitable income tax deduction of an amount determined by a qualified property appraisal. If the property has increased in value since the donor acquired it and has been held for longer than 12 months, the deduction is for the appraised value of the property less any amount that would be reportable as ordinary income if the property were sold by the donor, up to a limit of 30 percent of the donor s adjusted gross income (AGI). If the property has been held less than 12 months, the deduction is limited to the lesser of the cost basis or fair market value, up to 50 percent of the donor s AGI. The donor can carry forward any unused deductions for use in up to five future tax years. Bargain sale Sometimes a donor may wish to give only a portion of the value of the real estate in question. In that case, the donor can transfer the real estate under an arrangement that is partially a gift and partially a sale. Known as a bargain sale, the charity purchases the property for less than its appraised value. The donor is entitled to take a charitable deduction for the value of the gift minus the purchase amount. Capital gain may be partially recognized in this event. Gift with retained use In today s lower interest rate environment, donors may be interested in making a gift of a personal residence or farm while retaining the right to enjoy the property for life or for a specified period of time. In this case, the donor is allowed a charitable deduction for the value of the real estate mi- March

3 nus the value associated with the right to continue to use the property. For example, a 70-year-old donor retaining the right to use a vacation home for five years prior to funding a campaign gift would enjoy a deduction for 85 percent of the value of the home. Gift with retained income Homes, investment property, agricultural property and other types of real estate can also be used to make gifts that provide a donor with income for one or more individuals for life or another period of time. The most common tool used to make gifts in this way is the charitable remainder unitrust. Such trusts can be structured to pay the donor or another recipient only the income from the donated real estate until it is sold. After the real estate is sold, the trust can then distribute a specified percentage of the value of the trust for life or other period of time. This planning tool is referred to as a flip unitrust. In some cases, it may also be possible to fund a charitable gift annuity with real estate. In this case, however, a marketability discount may be necessary to ensure the charity does not commit to payments that may be in excess of the amount received when the real estate is sold. Significant income, capital gains and estate tax savings can be realized when making gifts in this way. Tax-favored inheritances for heirs It may also be possible to temporarily redirect income for charitable purposes while transferring real estate to heirs through charitable gift planning techniques, such as the charitable lead trust. This option can be especially helpful in the case of a commercial property that s expected to increase in value over time and also generates reliable cash flow. A donor can transfer such property to a charitable lead annuity trust (CLAT) for a period of time before the heirs receive the property free of gift and estate tax. When the trust terminates, heirs own the property at its then current value with no gift or estate tax due on any increased value. They will also receive any income generated by the property in excess of the required payment amount that has accumulated in the trust over its term free of additional tax, as those amounts will have been taxed as received by the trust. Continued on Page 4 Consultant s Corner: Tips for Accepting Gifts of Real Estate by John Jensen. Having well-defined real estate gift acceptance policies in place can minimize many potential challenges and open the door for a valuable charitable gift. Here are some tips for creating a clear real estate gift acceptance policy. Establish minimum estimated net values, assuming the property will be sold. This quickly eliminates gifts too small to be worthwhile. Obtain a preliminary objective opinion of value. Brokers will often provide a windshield appraisal providing an initial sense of value. Determine who holds title to the property. Asking who has title will generally produce more accurate information than asking who owns it. This information can often be found on a recent property tax bill. Require that any outstanding mortgages or other liens be identified early in the discussion. Require a Phase I Environmental Assessment if your organization will take title to the property. Prior to any final decisions, require that a staff member physically inspect the property. This can bring to light potential problems that may not be otherwise apparent. These are just a few of the many issues that should be addressed in effective real estate gift acceptance policies. Take a systematic approach, but be prepared to be flexible when appropriate. Too many charities either reject real estate gifts as a matter of policy or impose so many rigid requirements on the gift that the donor walks away before there is ever a serious discussion. John Jensen is a Senior Consultant and Senior Vice President with Sharpe Group. His background includes 10 years at The Nature Conservancy as Director of the Maine Chapter and National Vice President for Development. He has worked on more than 500 real estate gifts. John has prepared numerous gift acceptance policy manuals combining both suggested gift policies with detailed pragmatic advice about how to approach and work through various types of gifts. For more information about encouraging or accepting gifts of real estate, contact a Sharpe Group consultant at or info@sharpenet.com. 3

4 Gifts through an estate Finally, a donor may wish to leave a residence or other real estate to charity at death through a will, trust or other testamentary disposition. While there are no lifetime tax or other benefits associated with a gift structured in this way, the full value of the property will be deductible for federal estate tax purposes. There may also be state tax savings. Other partial interests In addition to the gift methods described above, it s also possible to make gifts of mineral rights, water rights, conservation easements and other gifts of less than the complete ownership of property. Alternatively, a donor may wish to donate the property while retaining these rights for themselves or their heirs. As we can see, real estate can be used in a number of ways to make larger charitable gifts on a current or deferred basis, but your donors may not know about the options available to them unless you take steps to inform them. While these gifts must be approached with great care (see Tips for Accepting Gifts of Real Estate on Page 3), they may constitute some of your largest gifts in coming years. Where the bulk of a donor s assets are tied up in other ways, real estate may be one of their most donatable assets and may be their best option for making their gift of a lifetime. To learn more about gifts of real estate, consider attending Sharpe s popular Gift Planning Toolbox seminar. See Page 5 for more information. Robert Sharpe is Chairman of Sharpe Group. Real Estate Gifts in the News After the death of movie director John Hughes in 2014, his family announced a gift of one of his mansions, valued at more than $4 million, to the Northwestern Lake Forest Hospital in Illinois. In celebration of his 100th birthday, David Rockefeller Sr. announced in May 2015 a gift of more than 1,000 acres of land to the Mount Desert Land and Garden in Maine. hancock/david-rockefeller-sr-gives acres-to-mdi-garden-preserve/ In December 2015, J.D. Nichols, chairman of NTS Realty Holdings LP in Louisville, KY, gave a retail building valued at $7 million to the University of Louisville as part of his $10 million pledge, one of the largest gifts in the school s history. jd-nichols-10-million-gift-to-university-oflouisville-mainly-comes-in-building-donation Sharpe Group Announces New Team Member March 2016 Sharpe Group recently announced the arrival of Consulting Associate Katherine George. Katherine previously worked in development and alumni relations at her alma mater, Rhodes College. In addition, she brings to the Sharpe team the experience she gained working as a volunteer with a range of nonprofits, including the Memphis Brooks Museum 4 of Art and A Space Gallery and SickKids Hospital, both in Toronto. As Consulting Associate, Katherine will work with the Sharpe consulting team and partner with clients to help them develop and strengthen their gift planning development strategies. We are pleased to welcome Katherine to the team, said Sharpe Group CEO Jim Ross. We believe her experience will be a great asset to our clients.

5 Sharpe Group on the Road Sharpe Group Senior Consultant and SVP John Jensen and Consulting Associate Katherine George will be at the annual AFP (Association of Fundraising Professionals) International Fundraising Conference in Boston, March 20-22, Barlow T. Mann, Sharpe Group COO, will speak on The 2013 Survey on Gift Annuities: Interpreting the Results at the ACGA (American Council on Gift Annuities) Conference in St. Louis, April 6-8, Sharpe Group Senior Consultant Aviva Shiff Boedecker will be speaking at Northern California Planned Giving Conference in San Francisco, May 2, Follow Upcoming Sharpe Group Seminars An Introduction to Planned Giving New Offering: Gift Planning Toolbox Integrating Major and Planned Gifts Discover how to build your planned giving program. Learn the keys to effective communications with your donors. Examine the donor lifecycle and explore how you can help donors make larger gifts today and plan gifts through bequests, trusts, gift annuities and other vehicles. Learn to work effectively with those 65 and older who may make up much of your donor base or soon will. This seminar is appropriate for those who are new to planned giving. Acquire the knowledge you need to complete larger gifts. Learn the basic workings of the most common gift planning tools, focusing on how to use them individually or blend them for maximum gift value. Determine which gift arrangements may be best able to fulfill a donor s personal and philanthropic objectives and learn to recognize the typical donor profile for each type of gift. Register for this seminar to benefit from training on various charitable planned gifts. Learn how major and planned giving can work together. Discover how to help donors make the best gifts for their age, wealth and other factors, while meeting your current, capital and endowment needs. Learn how to interpret a donor s verbal and non-verbal clues to determine which giving option is right for them and how to help donors make larger charitable gifts that might not otherwise be possible. This seminar is for you if your organization has both departments and would like to bring everyone together, or if you or others are responsible for both major and planned gifts. Chicago July 11-12, 2016 San Francisco March 29-30, 2016 Washington D.C. May 2-3, 2016 Chicago April 11-12, 2016 New York August 8-9, 2016 See full agendas and register at or call with questions. 5

6 Help Your Donors Understand the Value of Noncash Gifts Are your donors aware of the benefits of making noncash gifts? Many are surprised to learn that by making noncash gifts instead of cash they may be able to give more, maximize tax savings and possibly generate an income stream for themselves or loved ones. Sharpe has proven effective donor communication materials you can use to educate your donors about giving securities, real estate and other noncash property. Giving Securities Addresses gifts of stocks, bonds, mutual funds and other securities the most common forms for noncash gifts. Giving Real Estate Emphasizes the many gift opportunities open to those who own highly appreciated real property. Giving Through Life Insurance Help donors understand how life insurance can be used to make larger gifts now and in the future. Giving Through Retirement Plans Help donors understand the many ways that retirement plans can be used to make meaningful gifts. Special emphasis on gifts directly from IRAs for older donors. For details about these booklets and how to order them, visit Stock your gift planning library Sharpe offers a complete library of gift planning booklets that are professionally written and designed to inform, educate and motivate your donors about some of the most popular and effective ways to make charitable gifts. Created by the industry s most experienced team of writers, gift planners, graphic designers and technical experts, these booklets are excellent ways to provide additional information to interested donors and advisors and promote various gift planning tools in targeted communications. Many booklets also include technical advisory sections that feature additional information to help advisors assist their clients in the gift planning process. Personalize your booklets by including your organization s contact information and logo on the front and/or back cover. If you are interested in additional customization of graphics and/or content, ask a Sharpe Group representative. Sharpe staff members can use their extensive experience to help you determine which booklets would be most useful for your program and can help answer the questions your donors are most likely to have. Call to speak to a representative. You may order any of these booklets directly online at What Kinds of Property Has Your Organization Received as Gifts? Do you have an interesting story to tell us about gifts of property to your organization? Share your story with us and tell us how we can make our Give & Take publication better at com/r/3tplz9z or by calling March

7 A Prescription for Gift Receipts by Jon Tidd Are you following the Sharpe Group blog? We regularly post information in our blog that is helpful for gift planning, including up-to-date information affecting your organization. Sign up to follow our blog at The following article is a blog post that first appeared on December 28, 2015 and was a follow-up to an earlier blog post, When Is a Gift Complete for Tax Purposes? The prescription is simple in principle, but sometimes not so simple in practice: Stick to the facts That s it. It applies to all gift situations, and no one (especially a strong-willed donor) can argue rationally against it. Let s look at some gift situations and see how to apply this prescription. SITUATION 1: On January 4, a Monday, an organization receives a $500 check dated December 31, a Thursday. The envelope is postmarked January 2, a Saturday. The tax law provides a gift made by a check deposited in the mail is complete on the date of mailing, not the postmark date, provided the check clears in due course. What is the date of mailing here? It s impossible to tell from the facts. The check could have been deposited in the mail on December 31 (after hours), January 1 or January 2. Not to worry; simply state the basic facts on the gift receipt. What are the basic facts? They are: [1] check was received via USPS on January 4; [2] check amount is $500; [3] check is dated December 31. Those are the facts. (Also state, by the way, whether the donor received any goods or services in consideration of her gift.) Leave it to the donor to claim when the gift was made on her tax return. If the donor insists the gift was made in December, it s acceptable to write on the gift receipt,...which you have stated you mailed in December... SITUATION 2: An organization receives in its account on January 4, a Monday, 1,000 shares of MMM stock. The organization is able to verify the stock was wired out of the donor s account on December 31. We don t know the date of gift for tax purposes; the law is unclear. But we know these facts: [1] 1,000 shares of MMM were received on January 4; [2] the shares were wired out of the donor s account on December 31. Although the gift receipt here need not state a value for the stock, the mean values of a MMM share on 12/31 and 1/4 are facts. It s OK, but unnecessary, to state those values on the gift receipt. Time for a review Gift receipting is important. As in the case of other organizational policies, it is advisable to periodically review your gift acknowledgement forms and practices. Jonathan Tidd has served as a technical resource to Sharpe Group for over 30 years. Jon is an attorney whose practice is limited to advising charitable organizations on gift planning issues. He is a member of the Arizona, Connecticut, Illinois (inactive), Indiana (inactive) and New York Bars. His clients include a wide range of educational, health care, arts, human rights and social service organizations. His articles on charitable gift planning have appeared in The Journal of Taxation; Estate Planning; Taxes The Tax Magazine; Trusts & Estates and other professional journals. A client service publication published monthly since 1968 by Sharpe Group, with offices in Washington, Atlanta, Memphis and San Francisco, info@sharpenet.com or through our website at The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details. Copyright 2016 by Sharpe Group. All Rights Reserved. 7

8 Donor Data Enhancement Services Donor Base File Enhancement How It Works 1. Upload your list to a secure site in a simple, pre-approved format. 2. Sharpe appends valuable demographic data to your file. Dramatically improve your ability to communicate with donors more effectively. With findings from the Sharpe KnowledgeBase, we know that donors give at different levels and in different ways based on age, income and net worth. We can help you identify and target these groups with the most effective communications for each. By adding demographic data to your donor files, you can segment and communicate gift planning strategies better, increasing your success in current and deferred planning efforts. In partnership with the largest data compilation company in the world, we offer this data packaged at a special group rate for Sharpe clients. Net Worth Silver You can choose Net Worth Silver or Net Worth Gold and you ll receive age, gender, marital status and net worth information about your donors (see charts below). Ask about other ways we can enhance your data à la carte (such as Deceased Suppression, Telephone Append or Age Append). This donor data enhancement forms the basis for our Sharpe Gift Planning Matrix. Visit us online at for more information on our findings. And ask your Sharpe Group consultant how to make this data work for you or how to combine it with other services for more favorable pricing. 3. Your file is returned to you to upload to your database along with a summary report, which your Sharpe consultant will review with you. It's Fast. It's Easy. It's Secure. Age (Month/Year) Marital Status * Data reported in nine levels, up to top level of $500,000+ Gender Net Worth Silver Wealth Rating up to $500,000+* $2,500 minimum for up to 25,000 matched records Then, $45 per thousand additional matched records Net Worth Gold Age (Month/Year) Gender For more information on Donor Data Enhancement Services, contact your Sharpe Group consultant at or info@sharpenet.com Marital Status ** Data reported in eleven levels, up to top level of $2 million+ Estimated Income and Net Worth Gold Wealth Rating up to $2 million +** $2,750 minimum for up to 10,000 matched records Then, $98 per thousand additional matched records Contact us to learn more info@sharpenet.com