Ethics of Engaging Seniors about Possible Real Estate Gifts

By Dennis Bidwell
August 2017

Here, drawing on some of the suggestions in that document, is an approach that has worked for me and my clients and, I believe, has served well the interests of many donors and their families.

1. Nothing is more important than keeping in mind the best interests of your donor prospect’s present and future needs, as best you can determine them. This can mean putting the brakes on when an enthusiastic donor wants to give away more than appears good for them. Some years back I was working with a hospital in conversation with a retired nurse who was devoted to this organization, for whom she had worked her entire career. She wanted to give her home to the hospital, retaining a life estate. The problem was that she didn’t have much in the way of other assets, and she might have risked impoverishing herself should health challenges come her way in the years ahead. We expressed great appreciation for her extraordinarily charitable impulse, but recommended that she instead leave the house to the hospital in her will, leaving her options open.

2. It’s also important to keep in mind that one of the donor’s needs may very well be to feel good about the charitable legacy they leave behind. Indeed, I think the most satisfactory element of my work is helping people to realize that they sometimes have, through their real estate assets, charitable capacity way beyond what they thought possible. In doing so, extraordinary gifts sometimes result – gifts that leave the donor proud and satisfied beyond measure.

3. Always take time to probe to learn the donor prospect’s full set of objectives. Too often gift planners start a conversation with a donor prospect with a particular gift structure in mind. It’s almost always better to start by seeking to understand a donor’s complete situation – their income objectives, their tax planning objectives, their wishes regarding various pieces of real estate, their life-style wishes, their desires toward their children and other heirs, the variety of charities they wish to help. From this will come a variety of gift proposals aimed at meeting their particular objectives. The proposals are likely to be much better received when grounded in the prospect’s stated intentions.

4. Always urge your donor prospects to seek professional input from financial and legal advisors. But think carefully about the right time for donors to seek this input. I have worked with many gift officer clients to present a menu of interesting and appropriate real estate possibilities for the prospect to consider Sometimes the intrigued donor has immediately referred these possibilities to their attorney or other advisor, who has dismissed them out of hand as unconventional or untested. (Sometimes this means the advisor is personally unfamiliar with the recommended approach.) I have found it often works better to spend time with the donor, and family members, letting them arrive at their own understanding of the proposed arrangement, and only later in the process — when they are comfortable with a particular gift structure — turn to their professional advisors. At that point the advisor will of course feel compelled to caution them if they really see undue risk, but hopefully they’ll see their role more as implementing a viable strategy than finding reasons to say no.

5. Encourage the involvement of family members. This is trickier than it seems. Especially with real estate that’s been in the family and has acquired emotional attachments. Sometimes parents are very clear-headed about their desire to dispose of a piece of real estate knowing full well that would not be their children’s preference. Sometimes parents, well-advised by counsel, want to treat one child very differently than another. Which is to say that the involvement of children, or brothers and sisters, in the discussion or property disposition may or may not be appropriate. Like many other matters, this is where good judgment, aided by the advice of experienced colleagues, is essential.

6. Other guidelines. I have seen in the Santa Fe document and elsewhere a number of practices that seem important and reasonable:

  • Ask potential donors if there is anyone else they’d like to join them in a meeting with you.
  • Ask if the potential donor has an executed durable power of attorney. If so, include that person in discussions where feasible.
  • Always emphasize that no immediate decision is necessary.
  • If there is any reason to question the mental capacity of the potential donor, be sure that one of the donor’s professional advisors and/or a trusted family member is present for discussions.
  • It is important to promptly provide a written summary of discussions that have taken place, and to encourage the donor prospect to share this with others where appropriate (keeping in mind the caution of item #4 above.)

These are almost always somewhat tricky situations. It’s not appropriate or ethical for the charity’s representative to come on too aggressively or with too specific of a proposal early in the conversation with the prospect. On the other hand, it’s not the job of the charity’s representative to be so cautious and timid, out of fear of appearing pushy, that they withhold from the donor prospect creative and appropriate ideas that might unlock charitable potential in ways fulfilling to donor and charity both. Experience and judgment, and adherence to a common sense code of ethics, will reveal a middle path.

In Arranging a Real Estate Gift, Use All the Tools at Your Disposal

By Dennis Bidwell

May 2017

Sometimes I’ll read an article on real estate gifts that suggests only one workable gift structure involving real estate – a charitable remainder trust, or perhaps making the gift by bequest, or maybe a bargain sale. I also see from time to time conference presentations that emphasize just one gift type.

These single-solution approaches trouble me. They are often made by someone representing a financial firm that makes their money by managing and investing CRTs, or by a law firm looking to build its estate planning practice, or by an organization in the business of managing donor advised funds.

These presentations may be good marketing opportunities for the organizations or firms involved, but they do not represent in my view what should be considered best practices in real estate gift planning. I believe such presentations promote one-size-fits-all solutions, skipping over the importance of first understanding the nature of the problem to be solved.

I consider it the responsibility of those of us in the gift planning arena – whether representing individual charities, law firms, consulting practices or financial firms – to devise gift structures that best addresses the facts and circumstances of the prospective donor, consistent with the policies of the prospective done charity.

I have seen charitable remainder trusts proposed where the donor never expressed any interest in receiving payments in exchange for their gift. (It turns out they were totally content with an outright gift.) I have seen a property-funded charitable gift annuity proposed when the donor would actually prefer receiving a lump sum of cash that they invest themselves. (In other words, a bargain sale or a fractional interest gift would have been a simpler and more appropriate solution.) I have seen bequests involving property encouraged without giving any consideration to the advantages of a retained life estate arrangement instead. I have seen a bargain sale proposed when essentially the same thing could be accomplished (without requiring upfront purchase funds from the non-profit) with a fractional interest gift.

I have found that a little gentle probing about what the donor’s objectives are in considering the gift will generally reveal the parameters within which the gift should be structured. How important is avoiding or minimizing capital gains tax? Do they want some cash back, or are they in position to make an outright gift? How much are they motivated by simply unburdening themselves of the property and turning over to someone else the responsibility for selling it? If they want cash back, would they prefer it as a lump sum or as a stream of payments? How important is an income tax deduction? Do they have the capacity to soak up such a deduction? Are they hoping to continue living in/using the property?

Careful listening, stimulated by a few guiding conversational questions, should be the starting point in devising a real estate gift solution that is tailor made to fit the circumstances of the donor and their property, while fitting within the gift policy constraints of the recipient organization. There are lots of tools available for use by the gift planner dealing with a real estate situation. There’s no excuse for not using all of them, where appropriate. Starting with an assumed solution in mind seldom serves the interests of either the donor or the charity.

Three Reasons to Engage Your Board of Directors About Real Estate Gifts

By Dennis Bidwell

February 2016

As I work with non-profits around the country, helping them attract and structure charitable gifts of real estate, I am finding more and more of them choosing to engage their board of directors in the real estate gift process. Here’s why.

First, a very large majority of real estate donors fit this profile: people over 65 years of age who own multiple properties (generally residential), often scattered geographically, whose children (if they have any) are otherwise taken care of in their estate planning, and who have a charitable interest in the institution. (See this article for more on this.) In my experience, that’s not a bad description for many a trustee at a college or university or hospital or museum, etc. For this reason, I’m seeing presentations made at board meetings, or at development committee or campaign committee meetings, simply because that’s where some of the very best prospects for such gifts are gathered in one place. At such meetings I’ve sometimes been asked to present a hypothetical case study whose fact pattern was eerily similar to the circumstances of a particular board member in attendance. Furthermore, once such a board member (or former board member, or advisory committee member, or long-time close friend of the institution) recognizes the reasons for gifting, rather than selling their unused vacation home, they often are more than happy to have their gift experience broadcast far and wide as an example of giving real estate.

Planned giving pioneer John Brown was fond of saying: “At the table of every Board meeting sits at least one potential real estate gift. It’s just that no one has ever connected the dots.”

Second, board members and other close friends of an organization often travel in circles where they’ll encounter people contemplating disposing of an unused second home, or an investment property. When a trustee of your organization, in a cocktail party conversation, learns that his or her friend is, say, getting ready to put their Nantucket home on the market, it’s important that at that moment they suggest that rather than immediately listing the property, would they mind a brief conversation with someone in the development office about a more tax-advantageous way of parting with the property that would also provide enormous benefit to the institution? The trustee need not be an expert on the tax treatment of various giving vehicles. But it is important that they recognize an opportunity staring them in the face and be ready to suggest a friendly next step.

And finally, successfully incorporating real estate gifts into an organization’s development program depends on institution-wide buy-in. It’s important that revised gift acceptance policies (see article here on gift acceptance policies for real estate gifts) that incorporate best practices regarding real estate gifts be run past the board not just for purposes of pro forma approval, but also because board members need to understand the magnitude of the real estate opportunity and why the organization has decided to pursue real estate gifts. Also, should there be resistance to real estate gifts in, say, the finance office or the office of the general counsel, it’s important that those offices understand that the Board of Directors has endorsed the initiative.

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?

Ramping Up Real Estate Gift Activity

Ramping Up Real Estate Gift Activity –
Different Strategies for Different-Sized Development Shops

by Dennis Bidwell

December 5, 2011

As gifts of cash and appreciated securities remain hard to come by, more and more non-profit development shops are turning their attention to other assets.  This often means an increased interest in real estate gifts, since real estate is by far and away the largest asset category for most U.S. households.

I have found that different organizations have increased their level of real estate giving through different strategies, which tend to vary as a function of the size and nature of the particular development operation. One thing that is common to all of these pursuits is a belief that the massive real estate wealth transfer taking place every day offers fundraising opportunities that can no longer be denied or delayed.

I present here my experience of how development shops of various sizes – small development operations, medium-size development shops, large development departments — have moved in some instances from almost accidentally receiving the occasional real estate gift to intentionally pursuing and closing the “right” real estate gifts in larger volumes.

Small development operations

I find that many smaller development departments – especially those staffed by one or two staffers wearing multiple hats, where there is limited planned giving experience – think they simply don’t have the capacity to undertake gifts of real estate.  But some of these organizations have attracted and completed an initial real estate gift, learned from the experience, then taken steps to grow their real estate gift activity. What have they done?

First, presented with a potential real estate gift that “just appeared out of nowhere,” they have sought the assistance of a local community foundation, a college or university with real estate gift experience, or one of the several private consultants concentrating on gifts of real estate. Using outside expertise to help arrive at the gift structure best suited to donor and non-profit, and to conduct appropriate due diligence investigations, and obtaining necessary internal approvals and arranging for help in disposing of the asset, such organizations have completed real estate gifts.

Increasingly, I am finding that such instances spur the organization on to think about how to more purposefully and systematically attract and process real estate gifts in the future. This sometimes leads to a desire to develop more formal gift acceptance policies and procedures covering real estate gifts. Often, the first major real estate gift can form the basis of a marketing effort aimed at encouraging those making decisions about disposing of real estate to call to learn about interesting charitable options.

In many instances, such organizations choose to firm up a relationship with a real estate gifts consultant, who stands ready to offer assistance when other situations arise.

Medium-sized development shops

For organizations with larger development operations – perhaps including a planned giving director – I have found that the same approaches used by smaller organizations often apply, but sometimes with more likelihood of using outside counsel of some sort as a coach, guiding the development officer through the steps of structuring, evaluating and closing a real estate gift. Such organizations often also find it helpful to train board members and top management in how to recognize a real estate gift situation staring them in the face

Larger development departments

Large non-profits with full-service development departments – perhaps with staff in major gifts, planned gifts, annual fund, development research, leadership gifts, development operations – have been especially aggressive in recent years in turning their attention to the potential of expanded real estate gift activity. Existing gift acceptance policies and procedures are often updated to reflect emerging best practices regarding real estate gifts. Gift officers from the organization’s various departments and schools and institutes are often convened for specialized training in real estate gifts, where the emphasis is recognizing opportunities, growing comfortable initiating real estate gift conversations, and how best to handle the “hand-off” to the planned giving department or wherever else real estate gift expertise is housed.

Sometimes these organizations have internal real estate departments to turn to for assistance in evaluating the property in question. Sometimes such organizations turn to outside assistance when the property is located out of state, beyond the radius in which the real estate department is accustomed to operating.

These organizations, which are often engaged in campaign planning or the early stages of a campaign, often find it valuable to provide training to their development committee or campaign committee, sometimes with an aim of building an explicit real estate gifts strategy into the structure of the next campaign.

Some such organizations have found it helpful to have outside real estate gift counsel available to “coach” gift officers working with real estate gift prospects, or in some instances to meet with staff periodically to brainstorm specific emerging real estate gift situations.

Whatever the size of the development department, non-profits of all sorts are increasingly warming to the vast potential of real estate gifts, while taking the steps to assure that risks are identified and appropriately managed.

Toward a More “Purposeful” Real Estate Program

Making Real Estate Gifts Happen

September 27, 2011

More and more non-profits are becoming aware that they are not seeing the volume of real estate gifts experienced by some of their peers.  They are realizing that other organizations have enjoyed considerable success in attracting a portion of the estimated 30 percent of the nation’s private wealth that is in real estate holdings.

Some organizations’ development operations have responded by transitioning over time from a program that occasionally accepts gifts of real estate in various forms, to one that more purposefully seeks to make the right real estate gifts happen.  This transition needs to occur, of course, while taking appropriate precautions to manage the various types of risk (environmental, liquidity, holding cost) that can be associated with owning real estate.

A review of the experience of those non-profits that have successfully made this transition reveals several important steps in developing a more active and lucrative real estate gifts program.

Get the key players on the same page

Successful programs tend to have clear gift acceptance policies and procedures governing real estate.  These policies assure that everyone in the organization is on the same page regarding the types of properties (residential, commercial, farms and ranches, undeveloped land, etc.) that will be accepted and the gift structures (CRTs, CGAs, retained life estates, bargain sales, etc.) that can be employed. These policies also tend to establish minimum gift amounts that take into account, one way or another, the often time-consuming and costly process of structuring, analyzing, and closing gifts of real estate.  Also, it is important to be clear about which parties in the organization (planned giving staff, treasurer’s office, general counsel, board development committee), as well as which outside sources of expertise, are involved in which aspects of the real estate gift review and approval process.

It is often very helpful to gather in one place all of an institution’s key players with responsibility for real estate gifts in order to refine these gift acceptance policies and procedures.  Such a working session can provide an opportunity for all to express their worries and reservations – which exist in some form in almost every institution – and then to share information and devise due diligence and approval procedures that address those concerns.  What emerges is often not just a set of clear policies and procedures, but an enhanced appreciation for the potential of real estate gifts, as well as streamlined relationships for facilitating such gifts in the future.

A two-stage review process

Increasingly, non-profits are adopting more “user-friendly” postures with regard to potential real estate gifts.  One way this new attitude comes across is by adopting a two-stage process for reviewing such gifts.

The aim of the first stage 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.

For potential gifts that pass such an initial screen, a period of due diligence then follows.  It is generally at this point that the donor prospect is asked to provide much more extensive information 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); and

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.

Gift acceptance letter

Once the committee charged with assessing potential real estate gifts has reviewed the various documents generated in the due diligence process and has agreed to accept the gift, it is generally good practice to communicate this decision to the donor in a detailed letter.  Such a letter would include any conditions placed on the gift and any proposed alternative gift structures, as well as a “roadmap” of sorts detailing who needs to do what along the way towards a closing of the gift.

Property disposition

Since the vast majority of real estate gifts are accepted with the intent of liquidating the property as quickly as possible (as opposed to gifts accepted for the ongoing use of the non-profit in furtherance of its mission), it usually makes sense to retain a local real estate broker to handle the listing and sale of the property.

Staff and trustee training

Once there is agreement within the institution on the types of real estate gifts that will be accepted, as well as the process for analyzing and accepting such gifts, many organizations find it useful to conduct real estate gift training sessions for development staff and board members.  These sessions should include everyone who may enter into conversation with a donor prospect about a gift of real estate.  The importance of briefing board members on real estate gifts cannot be overstated.  After all, it is highly likely that they will come into contact with donor prospects (including fellow board members) who might mention, for example, plans to sell the family’s summer home, thus making them candidates for follow-up gift conversations.

 

Marketing

When there is awareness at the staff and board level of the “profile” of the likely real estate donor, as well as concurrence on the types of real estate gifts to be accepted, organizations often choose to get the word out that they are interested in discussing real estate gift possibilities.  Case studies in newsletters and mailings, web site illustrations, special mailings, workshops for professional advisors, annual report “advertising” – these and other marketing vehicles should be used to plant the seed for friends of your organization who are seeking creative ideas about how they might use their surplus real estate holdings to further the mission of the organization.

Research and personal visits

Surveys have shown that the single most effective way to stimulate real estate gifts for many organizations is to conduct donor research aimed at identifying prospects who own multiple pieces of real estate and are 65 or older, and then to arrange personal visits with such prospects during which their plans for the future of their real estate holdings are discussed.  It may take some time before gift officers at your organization develop a comfort level in initiating such conversations, but this is clearly a highly effective way to develop real estate gifts.

Conclusion

Real estate is an important source of wealth for many donors.  While gifts of real estate are inherently more complex and risky than gifts of cash or publicly-traded securities, we have shared some proven steps your organization can take to manage this complexity and risk.  Once your organization has put in the work to have agreed-upon policies and procedures in place for handling real estate gifts, it will be more prepared to attract and close lucrative real estate gifts.