Real Estate Gift Readiness Audit

By Dennis Bidwell
June 2015

I have recently been asked by several clients to help them conduct an “audit” of their institution’s readiness to actively pursue real estate gifts.

At the end of this audit exercise, sometimes the conclusion is: “We’re just not ready to tackle real estate gifts. We’ll come back to it in another year.” Increasingly, however, the response is: “We’re leaving so much wealth on the table by not pursuing real estate gifts that we’ve decided to build up our capacity in this area now.”

I hope this audit template is of use to your organization.

Institutional support
1. Is pursuit of real estate gifts (with appropriate attention to minimizing risk) supported by your VP of Development? By your CFO? By your general counsel or equivalent?
2. Is top management at your organization familiar with the real estate gift experience of peer institutions?

Gift acceptance policies and procedures
1. Do your gift acceptance policies address the forms of real estate gifts you will and won’t accept, and under what circumstances?
2. Do you have a policy on real estate gift minimums?
3. Do you have a clear assignment of responsibility for handling the different stages of a real estate gift: initial conversations, detailed gift structuring, gift acceptance letter, due diligence, gift closing, interim management, sale of property?
4. Would you describe your policies as a balance between “donor-friendliness” and “institutional protection”?

Training
1. Do your gift officers have a basic familiarity with different types of real estate gifts and the situations for which they are appropriate?
2. Do your gift officers have a comfort level with discussing/initiating real estate gifts with donors?
3. Are your gift officers expected to bring forward at least one real estate gift scenario every six months?
4. Do your board members (or development committee members) understand enough about real estate gifts to recognize an opportunity when it presents itself at a cocktail party?

Marketing
1. Do you promote your interest in real estate gifts prominently on your website?
2. Do you market your interest in real estate gifts in your newsletters/magazines/etc.?
3. Do you provide information about real estate gifts at member/alumni gatherings?
4. Does the content of your marketing emphasize a “problem solving” approach?

Prospect research/outreach
1. Have you attempted to identify prospects who specifically fit the profile of a real estate donor?
2. Do you have a plan to reach out to identified prime prospects for real estate gifts?

Campaign work (where appropriate)
1. Have you built real estate gifts into your campaign strategy and structure from the start?

Making Good Real Estate Gifts Happen

By Dennis Bidwell
February, 2015

Experience continues to show that the likelihood of an organization receiving “good” real estate gifts (properties that are marketable, free of environmental and title problems, and with net value of at least $50,000) increases as a function of the effort expended in marketing and reaching out to likely real estate donors. Conversely, non-profits that do little or nothing in the way of marketing their interest in real estate gifts will tend to receive the occasional real estate inquiry, but it is often a “bad” real estate gift offer (questionable marketability, title defects or environmental issues, likely net value way less than $50,000).

This graphic tells the story:

Twenty years of experience helping non-profits attract, structure and dispose of real estate gifts tells me that when an organization doesn’t market its interest in real estate gifts, and doesn’t initiate conversations with donors about their real estate holdings, the organization is likely to receive only the occasional, haphazard inquiry about a piece of property.  Very often, but not always, the property offered will be problematic in one way or the other – it’s an unmarketable time share, or a property with very little equity value once the mortgage has been paid, or a property with access issues, or a property with a complicated family ownership story, or a property with some sort of environmental complication.

Often, organizations that have been offered such gifts over time come to the conclusion that all real estate offered as gifts must be similarly problematic. They don’t know what they are missing out on.

We all know of many organizations with a history of having accepted one or more of these “bad” real estate gifts, way back when, which has left behind the lore that real estate gifts are bad.

But hundreds of non-profit organizations are accepting many high quality real estate gifts every year.  It’s just that the organizations receiving these gifts tend to be organizations that make the gifts happen through their marketing and outreach efforts.

Several years ago, I worked with the National Committee on Planned Giving (now Partnership for Philanthropic Planning) to conduct a survey of its members nationwide regarding real estate gifts. (See Journal of Gift Planning, Volume 12, Number 3 for complete results.) Among the organizations reporting a high volume of real estate gifts, these are the percentages that rated various marketing and outreach approaches either “very effective” or “somewhat effective”:

The conclusion? Real estate gift activity – particularly opportunities to close “good” real estate gifts — increases with the intensity and type of marketing and outreach effort undertaken.

The single most effective approach? Identifying prospects who fit the profile of a likely real estate donor (typically people over 65 owning multiple properties, geographically dispersed), and then initiating a conversation with them about their real estate holdings and their plans.

That’s how most of the really good real estate gifts I see happen. By making them happen. 

 

Real Estate Gifts: Common Questions, My Answers

By Dennis Bidwell
December, 2014

Q: What’s the best way to approach a donor about a possible real estate donation?

A: First, you’re on the right track by thinking in terms of approaching potential donors, rather than waiting for them to contact you about their real estate.  In fact, the most transformative real estate gifts I’m seeing these days are those that result from conversations initiated by a development officer.  What I believe is most successful is this: 1) Do your research (internally or with assistance from outside contractors) to identify folks who fit the profile of a real estate donor. 2) Decide who is best positioned in your institution to visit with this prospect. 3) Be clear on what types of real estate gifts your organization will and will not accept. (Hopefully your gift acceptance policies reflect best practices in this area.) 4) Rehearse with a colleague the way you will handle the conversation. 5) Be confident that if you’ve done your homework well (i.e. if the prospect really does fit the profile of a real estate donor) your prospect will likely welcome a conversation about a situation that is very much on their minds these days. 5) Recognize that you don’t need to be an expert on the technical aspects of real estate gifts, and trust that that expertise (hopefully) resides back in your shop or with outside assistance you can tap. 6) Enjoy your conversation, and keep your ears tuned to real estate situations that might lend themselves to gift scenarios.

Q: How worried should we be about environmental problems in gifted real estate?

 A: It’s my experience that very often the risk of environmental contamination on a property is overstated, often reflecting a story involving acceptance of a property 30 years ago with a gas tank, or with spilled chemicals, etc. Often this story, apocryphal or not, has become legend and been used to cut off discussions of real estate gifts. The reality is that tried-and-true gift screening and due diligence approaches commonly in use today would quickly identify the existence of such an environmental problem and would lead to dismissal of the gift possibility very early in the process. Increasingly, non-profits are agreeing to cover the cost of a Phase I environmental assessment as a cost of doing business. Also, sometimes it’s worth looking at a property that might require some investment in clean-up.  Would it make sense to turn down a $1,000,000 gift because of a $10,000 cleanup?

Q: How do I convince my bosses to open the door to real estate gifts at our institution?

A: My September, 2014 newsletter was devoted entirely to this subject.

Q: Does an organization have to be a particular size before it considers real estate gifts?

A: I am seeing organizations with 2 and 3 person development shops ramp up their capacity to handle real estate gifts.  And I am seeing smaller development operations seek real estate gifts, knowing they can turn to outside expertise (community foundation, sometimes an area university, a real estate gift consultant) to help them handle the gift.  Some community foundations look for opportunities to partner with smaller non-profits in structuring and managing planned gifts involving real estate.

Q: What should be our approach when we know a donor intends to leave us property through their will?

A: If the property they have in mind is a residential or agricultural property, you should arrange to visit them next week to explore the suitability for them of a current gift subject to a retained life estate. Most property owners, even those with excellent legal and tax counsel, aren’t aware that they could achieve essentially the same results as a gift by bequest by making the gift now, retaining a life estate. The difference is that in the case of retained life estate gift they are entitled to a substantial income tax deduction, and they would have the satisfaction (and recognition) of making the gift during their lifetime.

Overcoming Institutional Resistance to Real Estate Gifts

By Dennis Bidwell
September 2014

Though it happens far less frequently than it used to, I still encounter development staff who are frustrated that their institution is not more open to considering real estate gifts. Sometimes this caution is housed in the office of the CFO, the General Counsel, or maybe even the Chief Development Officer.

Often the reason cited for such opposition is a now-legendary story of a gift, decades ago, of an abandoned gas station, or a time share, or a property that turned out not to have road frontage. In most cases the specifics are vague, but what has remained is the lore that real estate gifts are problematic, and a headache for the person that wound up dealing with the mess.

I am often asked how to overcome this resistance — how to help open the door to the real estate gift opportunity. Here’s my answer:

First, do an informal survey of the practices at your peer institutions. There is a very good chance that other organizations you’re familiar with have become more open to real estate gifts. It’s a good possibility that some of them have decided to actively seek out the right real estate gifts and have results to show for it. In my experience, few things are more likely to open the eyes of folks in senior management than a reminder of innovations and successes at peer institutions.

Second, marshal the facts and figures about the magnitude of the real estate gift opportunity, the average size of real estate gifts, the volume of real estate gifts flowing to other institutions, the profile of the typical real estate donor (which will often align nicely with your own institution’s demographics), the motivations of real estate donors, etc. (Previous articles in my newsletter, and various articles I’ve written, here, provide all of this information. If you want more, contact me.)

Third, figure out the right team of people to accompany you in meeting with whomever stands as the roadblock to real estate gifts at your institution. Every organization’s politics are different, so there’s no one answer to this. But, assemble your team and arrange the meeting.

Once you have your audience, I recommend making these arguments:

  • Present the basic numbers: proportion of the nation’s wealth that is in real estate compared to cash (something on the order of 30% to 10%), average real estate gift size, success stories at peer institutions, etc.
  •  Offer the reminder that probably over 30% of the massive intergenerational wealth transfer surrounding us in the form of real estate. What are we doing to capture our share?
  •  Remind him/her that there is now a set of best practices regarding real estate gifts that, if used at your institution, would virtually eliminate the chance that the problematic real estate gift of decades ago would ever make it past the initial screening process. Emphasize that institutions enjoying great success with real estate gifts have tightened up their screening and due diligence procedures (while making them more user friendly) while opening the doors wider to real estate gift possibilities.
  • Discuss the eagerness of aging property owners to turn over to someone else the burdens of property management and marketing, particularly when educated about the tax benefits of doing so, and when reminded that turning their equity into cash flow is sometimes possible.
  • Share examples of ways that other institutions are marketing their interest in real estate gifts (web pages, enewsletters, alumni magazines, class reunion presentations, etc.)
  • Remind him/her that there’s a very good chance that a “leadership” real estate gift is sitting around the table at your own Board of Directors’ meeting.
  •  Talk about the increasing role of real estate gifts in campaigns. Many institutions are realizing that the next campaign is predicated on harvesting gifts from donors who already think they’ve made their final gift – and to do this means turning to other assets, chief among them real estate.
  • And, of course, offer that there is abundant expertise regarding real estate gifts available through professional conferences, gift planning literature and websites, and, of course, real estate gift consultants.

My advice is to not be deterred by resistance to real estate gifts at your organization. I’ve seen reluctant CFOs and CDOs turn completely around when they realize they can be perceived by their peers as innovative and revenue-enhancing by embracing, rather than resisting, real estate gifts done properly.

How to Talk Real Estate to a Donor Prospect

by Dennis Bidwell
August 2014

One of the more frequently-asked questions I get goes something like this: “How do I start talking to a donor about a possible real estate gift? Won’t they think I’m pushy or too personal if I bring it up?”

First, you’re right to be thinking about these types of gifts. Real estate remains the single largest asset class for U.S. households, and it constitutes a larger slice of the inter-generational wealth transfer pie than any other piece. Furthermore, the best real estate gifts happening these days are the gifts resulting from discussions initiated by a gift officer – as opposed to waiting for the phone to ring or the email to arrive.

Second, you should be sure that some organizational preliminaries are in order before hitting the road to talk real estate gifts. Your organization needs gift acceptance policies that incorporate best practices regarding what types of real estate gifts would be considered (primary residences and second homes, farms and other land, commercial and industrial properties, etc.) in what gift structures (gift annuities, remainder trusts, bargain sales, fractional interest gifts, outright gifts, etc.) under what circumstances (Would you trustee a CRT funded with real estate? What’s your gift minimum for real estate gifts, and how do you calculate it?). Also, you need to be sure there is clarity as to what combination of people (CFO, outside consultant, VP Advancement, General Counsel, etc.) will be involved in what aspects of the process (gift structuring, due diligence, gift approval, property disposition…) along the way, and at whose expense these experts will be hired.

Then, be armed with good research. Have you identified prospects who fit the profile of a real estate donor? (Generally over 65, own multiple pieces of real estate in different jurisdictions, children are otherwise provided for in estate planning Do they own a highly-appreciated piece of property that could expose them to large capital gains tax if they sold it? Have they said anything about not using the property the way they once did, or about it becoming a burden to care for and pay for?

Take comfort knowing that you’ll have back-up. You should approach a conversation with a potential real estate donor knowing that there’s a point at which your comfort level will likely end, at which point someone back in the office, or in your consultant’s office, can step in.

And don’t be afraid to introduce the topic of real estate. In my experience, people who fit the profile above are about 90% likely to have been thinking recently about what they will eventually do with their real estate. It’s your job to get there before they list it for sale. As a matter of fact, several times in recent years, when accompanying a development officer on a call, introduction of the topic of real estate has prompted a response something like: “I wondered when you were going to talk to me about my properties in XXX and YYY. You’ve talked with me about everything else I own at one point or another. And this is where most of my wealth is, after all.” More often than not, a property owner in this situation will be quite interested in alternative ways (particularly tax-efficient ways) to think about disposing of their real estate, especially when they realize the philanthropic goals they could attain in this way (and often in no other way). There also may be ways to structure the gift of real estate that unlocks equity and results in an income stream back to the donor.

Finally, I’ll share with you some of the “opening lines” I’ve accumulated over the years in my training sessions with gift officers.

  • “Tell me about your plans for your home in Maine.”
  • “Are you expecting to sell any of your properties in the next 18 months?”
  • “I was recently at a conference where interesting real estate gift arrangements were discussed. I guess there’s quite an increase in real estate gifts, as more families become aware of the different ways they can dispose of their real estate.”
  • “Gift planning work is really interesting. Lately I’ve been learning about different ways that property owners can use some of their real estate holdings to make gifts while addressing their tax planning and retirement planning issues.”
  • “I’ve been working with someone lately on what to do with their vacation home on the Cape. They’re considering giving it to XXXXXX, but retaining the right to use it for the rest of their lives…”
  • “We’re working with a consultant who specializes in working with families to develop solutions for their real estate that involve a gift component while addressing their estate planning/retirement objectives.”
  • “Something that’s been coming up with me lately is alums who are feeling a bit burdened by real estate they’ve owned for some time, but aren’t quite sure what to do with it.”

You get the idea.

So there it is. Prod your organization to do the prep work for real estate gifts, arm yourself with research and back-up, and go out and start talking about real estate with your prospects. They’ll quite likely appreciate you for doing so. And so will your boss.

Debunking Six Myths about Real Estate Gifts

By Dennis Bidwell
June 2014

Myth #1: If a property owner is offering a piece of real estate as a gift, there must be something wrong with it. Most of the time this is simply not true. These days property owners are exploring giving away perfectly fine pieces of real estate because: 1) they have grown weary of continuing to own and manage a property — often a second or third residential property — they no longer use; 2) they are wary of marketing the property themselves; 3) they like the idea of making a wonderful gift while retaining their cash; 4) they can use the substantial charitable contribution deductions triggered by such a gift, and they like avoiding or reducing the capital gains taxes that might have been payable in the case of a sale.

Non-profits that have ramped up their real estate gift activity have grown very good at quickly deflecting the problematic gift offerings, and spending their time instead on the promising real estate gift possibilities. Also, charities that actively pursue real estate gifts – through marketing and by initiating conversations with prospects – tend to see a much higher quality of property offered up than those who don’t market and see only the occasional, often problematic, property that is sometimes being shopped around.

Myth #2: The staff time and upfront expenses of evaluating and structuring a possible real estate gift just isn’t worth it. In the 2009 IRS report on non-cash charitable gifts the average real estate donation for donors 65 and older (the vast majority of real estate donors) was reported as $585,000. Yes, real estate gifts can be time-consuming and require some investment in due diligence investigations. And yes, not every gift explored makes it across the finish line. But, I would argue, the magnitude of real estate gifts more than justifies an investment in ramping up a carefully thought-out real estate gift effort.

Myth #3: Most gifts of real estate are deferred in some way, meaning we won’t have cash to use for many years. In fact, surveys show that more real estate gifts these days are given outright than through life income arrangements or subject to retained life estates. Outright gifts are often liquidated and fully useable by the charity in a matter of months.

Myth #4: Most property offered as a gift has a mortgage on it. This is not true. The vast majority of property offered as a gift of some sort is offered by donors over 65 years of age. And we know (from the Statistical Abstract of the U.S.) that 83% of the real estate owned by folks 65 and older is debt-free. In situations where a property is encumbered with a mortgage, there are often work-arounds making it possible to complete the gift nonetheless.

Myth #5: Property owners are resistant to having development officers talk to them about their real estate holdings. To the contrary, it is my experience that many aging owners of property welcome fresh new ideas about how they might dispose of real estate that is weighing on their minds. When a non-profit representative presents the outright gift possibility, or life income arrangements, or a retained life estate as a possible approach to a dilemma, the property owner often welcomes the introduction of new possible solutions. Whether a gift results from such conversations or not, it is my experience that the prospect usually appreciates the suggestions.

Myth #6: You should never accept real estate as the asset funding a Charitable Gift Annuity. The traditional reluctance to fund CGAs with real estate is gradually giving way to the realization that many property owners want to convert “non-performing” real estate assets into steady supplemental retirement income, wanting to lock in a return (as opposed to being exposed to the market variability of a real estate-funded Charitable Remainder Trust.) This transition is aided by the availability of various proven techniques for avoiding the liquidity risk associated with real estate-funded CGAs. Among these techniques: marketing of the property prior to the charity taking title; deferring the CGA one or more years, to allow ample marketing time; using a “charitable put option” to identify a qualified buyer prior to issuing the CGA contract; and making downward adjustments to the CGA payout rate to reflect the estimated holding costs and other expenses of working through the CGA arrangement.

A Donor-Friendly Way to Screen Real Estate Gift Inquiries

By Dennis Bidwell
April, 2014

In my experience there is often someone or some office in a non-profit organization—perhaps the CFO, maybe the general counsel’s office—that is exceedingly cautious about accepting real estate gifts. Often this is due to a bad experience from 20 years ago, such as the now legendary story of the gift of the former gas station owned by three warring siblings.

My response is that those of us who have worked with real estate gifts for decades—and there are many of us at this point—have figured out a pretty good way to open the doors wide to potential real estate gifts, while at the same time putting in place rigorous—but donor friendly—screening and due diligence procedures. The result is that only the promising and generally non-problematic gifts make it through the process, while the bad gift potentials get discarded early on, with a minimum of donor disappointment.

This approach starts with clear gift acceptance policies and procedures that adopt best practices for screening and receiving real estate gifts in various forms. And then it proceeds to a two-stage screening and due diligence process.

Gift acceptance policies

State of the art real estate gift acceptance policies these days specify whether, and under what conditions, various real estate gift types are acceptable (outright, bargain sale, charitable gift annuity, charitable remainder trust, retained life estate, fractional interest) and what gift minimums apply in each case. (With the understanding that allowance always need be made for exceptions.) These policies also tend to clarify the “who does what” within the institution—screening, due diligence coordination, gift approval, handling closings, coordinating property disposition, etc. Better to have all of this thought through in advance than to be left scrambling while an impatient donor prospect feels put off for weeks and months on end.

A two-stage screening and due diligence process

The aim of the first stage of a screening and due diligence process is to gather essential information about the property, the donor prospect, and the proposed gift structure as rapidly as possible in order to provide the prospect with a prompt indication of whether or not your institution wants to pursue the gift. Providing such an answer quickly not only avoids wasting a great deal of time and effort on the part of the donor prospect, but also assures that your institution’s staff is spending its time on the truly promising gifts.

[A one page guide to gathering this initial critical information, which many institutions have adopted, is available to anyone who “likes” my Facebook page.]

For potential gifts that pass such an initial screen, a period of due diligence then follows. It is generally at this point—and not sooner—that the donor prospect is asked to provide much more extensive information—sometimes the right questionnaire at this stage of the process is helpful—and documentation about their property and their financial situation.

The key elements in a due diligence process designed to identify, manage, and minimize risks generally consist of the following:

  1. title investigation with the assistance of a local real estate attorney;
  2. a Phase I environmental assessment, with follow-up as needed;
  3. an independent assessment of local market conditions and the property’s market value (usually stopping short of a full-blown qualified appraisal);
  4. a building inspection (if appropriate), along with a personal visit by a representative of the institution.

Moreover, non-profits are recognizing that in order to be in control of the due diligence process, as well as to be more “donor friendly,” it makes good business sense to assume the costs of these investigations, rather than ask the donor to do so.

I am convinced that the key to increasing the quantity and quality of real estate gifts is, first, to broadcast an institution’s interest in accepting real estate gifts in various ways, and then to work the prospective donor in a two-phase process that initially screens out/in in a donor-friendly way, saving the more burdensome parts—providing documents, completing questionnaires, allowing people on the property for inspections—until a later stage when it’s fairly clear that this indeed a promising gift.

Retained Life Estate Case Study: A New York City Coop Apartment

By Dennis Bidwell
February, 2014

Take-aways from this gift scenario:

1. A retained life estate gift of this sort can accomplish essentially the same things as leaving the property to charity in one’s will, except that in this case the donors are entitled to a very substantial current income tax deduction and enjoy the satisfaction and recognition of making a gift here and now.
2. A coop apartment is considered a personal residence for purposes of making a gift subject to a retained life estate. Technically, the property that is gifted is the shares of the cooperative corporation.
3. The net effect of making a gift subject to a retained life estate in a case like this one is to increase after-tax income, because of the cash savings coming from the current tax deduction that is triggered by the gift.

Dr. Jacobs, a graduate of Pioneer Medical School, and his wife, both in their early 80s, own a coop apartment in New York with an estimated value of $8,000,000. They have owned it for over 30 years, so their tax basis in the property is very low by comparison. They love living where they are, and have no desire to move for some time, assuming their health allows. As Dr. Jacobs moves further into retirement he has considered making a substantial “naming opportunity” gift to the Medical School. They had planned to leave the coop to the Medical School through their estates, but a gift officer from the School introduced the possibility of making the donation now, subject to a retained life estate. When they realized the bump to their after-tax income that would result from the charitable deduction triggered by such a gift, they became especially interested.

Medical School staff and the Jacobs’ advisors are confident that technical issues associated with such a gift can be worked out: transfer of the Jacobs’ lease from the Coop Corporation to the Medical School, with the School subsequently sub-leasing the property back to them; full compliance with all of the requirements of the Coop Corporation Board regarding rights of first refusal, approval of the coop buyer, etc.

The Jacobs are taking their time, as they should, in considering whether to proceed with this gift. Among the benefits that attract them to this arrangement are:

  • They could continue to live in their wonderful New York residence.
  • They would totally avoid the exposure to a large capital gains tax that would come if they were to sell the property
  • The value of the substantial tax deduction (in the vicinity of $6 million, useable over 6 years) resulting from such a gift would increase their after-tax income for the years ahead.
  • They could experience the satisfaction of having a building named after them now, during their lifetimes.
  • Neither they, their executor, nor their children, would have to worry about selling the property down the road.
  • They would make a very significant gift while retaining all of their liquid assets.

Medical School officials are excited about the potential gift for a variety of reasons:

  • The gift would be irrevocable, allowing them to proceed with naming opportunity discussions.
  • The gift would be publicized, and would no doubt inspire others in similar circumstances to consider making a similar gift.
  • The Jacobs’ other assets – cash, insurance, retirement funds, other real estate, etc. – remain available as possible future gifts.

Stay tuned. I’ll let you know if this gift proceeds to fruition.

Attracting Real Estate and Other Non-Cash Gifts for Endowment and Stewardship

by Dennis Bidwell
October 2013

Land conservation organizations are especially well-suited to develop robust Legacy Giving programs (I prefer that term to “planned giving”)  emphasizing real estate gifts.  I truly believe that such efforts hold the prospect of long-term financial security and permanence for these organizations through endowments and stewardship funds. Why? Three reasons.

First, land trust can make a better argument than almost any other organization for having to be around forever. Land trusts, after all, exist on the premise that land owners can entrust to them the permanent protection of their land.  Asking for funds to assure the permanent stewardship of land matches up very nicely with the motivations of people wanting to assure a legacy – for themselves and for landscapes of meaning.

Second, with more U.S. household wealth in real estate than in any other asset class, property gifts of all sorts are an especially important component of Legacy Giving programs. And conducting real estate transactions is one of the core competencies of land trusts. When land trusts turn their real estate expertise to structuring and closing gifts of non-conservation real estate (think vacation homes, ski condos, apartment buildings, etc.), they have put themselves on a path toward long-term financial security.

Third, an essential feature of successful planned giving programs is the long-term cultivation of personal relationships with donors. In the course of working with property owners and other community members to bring permanent protection to land rich with history and meaning, land trusts develop especially close and trusting relationships.  These relationships often deepen over time, with the potential to produce enduring, sometimes transformational, gifts.

More and more land conservation organizations are learning to talk with donors about the whole menu of gift techniques – outright gifts, bequests, charitable remainder trusts, charitable gift annuities, retained life estates, fractional interest gifts, etc.  And they growing more skilled at discussing their donors’ whole range of assets – real estate of various types, securities, retirement plans, insurance policies, business interests, etc. – in order to help aging members and donors dispose of assets no longer needed. The result of this process of inquiry and problem solving many times results individuals and families realizing they have charitable capacity they never thought they had.  When this happens, it brings joy and satisfaction to all involved.

Case Study Conservation Easement → Retained Life Estate → $3 Million of Sales Proceeds

by Dennis Bidwell
October 2013

Take-aways from this gift scenario:

  1. Anytime a donor or property owner indicates they might be leaving your organization an interest in real estate through their will, you should acquaint them with the pros and cons of the retained life estate as a way of accomplishing essentially the same thing, but with extra benefits.
  2. Conservation easement stewardship visits should be regarded, among other things, as an opportunity to deepen relationships with the property owners. And land trust representatives on such visits should be trained to keep their eyes and ears open to hints of other possibilities.
  3. People will seldom give your organization a property unless they know your organization is interested in real estate gifts and knows how to handle them.

In the 1990s, Owen and Ellen Love donated a conservation easement on their 662-acre farm in Kalamazoo County, Michigan to American Farmland Trust. Besides being proud of protecting the prime agricultural soils on their farm, they received a substantial charitable donation deduction which they used to offset some of their farm income for several years.  A few years later, on an otherwise routine easement monitoring visit,  Owen and Ellen hinted that they were re-thinking their wills, based on dissatisfaction with the university they originally hoped would receive their farm by bequest.  Conversations led to the possibility that the farm might be left instead to American Farmland Trust.

In the months that followed, I worked with Owen and Ellen, their advisors, and their children, to explore the pros and cons of a bequest gift of the farm versus a life-time gift of the protected farm, subject to a retained life estate.  In the end, the Loves decided to deed away the farm during their lives, retaining the right to live on and rent the farm for the rest of their lives. They were motivated by two things made possible by a retained life estate gift that aren’t possible in a gift by bequest: 1) a substantial income tax deduction they could claim at the time of the gift (which, based on actuarials, amounted to about 75% of the value of the easement-restricted property); and 2) the satisfaction of knowing that during their lives they had made a hugely significant gift for land conservation that might inspire others to follow suit.

In the years that followed, Owen, then his beloved wife Ellen, died.  After some years of renting the farm to a local family, AFT sold the easement-protected farm, in 2010, to another local farm family.  The bulk of the $3 million of sales proceeds funded the Owen and Ellen Love Revolving Fund for Farmland Protection.