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.

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.

The Buy vs. Lease Decision

October 7, 2010

I am a fan of the work of the Nonprofit Finance Fund.  Through consulting services, financing, and advocacy, they help all sorts of nonprofit organizations stay in financial balance, so that they’re able to successfully adapt to changing financial circumstances — in both good and bad economic times — and grow and innovate when they’re ready.

Recently, an executive of NFF told me that it was his organization’s experience in recent years that of the nonprofits reporting financial distress of some sort, fully 95% of those financially troubled organizations had real estate ownership problems at the core of their financial difficulties.

For example, a nonprofit was given a property for their use, but didn’t anticipate the long term costs and hassles of property ownership. Or perhaps a nonprofit mounted a capital campaign for acquiring a headquarters building, not fully understanding the impact on their operating budget of the operations, maintenance and capital improvements required over the years.

Too seldom, in my experience, do nonprofits take a hard analytical look at the true costs, advantages and disadvantages, of the buy vs. rent decision.  Too many nonprofits tie their hands through long term ownership, rather than staying nimble through property leases. Too many nonprofits, in my opinion, wind up with way too much of their capital in a fixed real estate investment, when they’d be better off with more of that capital in cash reserves and endowment.

I recently was asked by The Cancer Connection, a wonderful nonprofit here in Northampton, to help them consider the possibility of mounting a capital campaign for the purpose of buying a facility to replace the leased space they had outgrown. As we worked it through, their board became convinced that they were in the business of providing services to individuals and families affected by cancer, not in the business of owning and managing real estate. We then proceeded to find suitable space, negotiate a long term lease, and launch a campaign to raise the money necessary for various leasehold improvements.  The result? Cancer Connection is in larger, better suited space, they raised all the money necessary to pay for improvements, and their cash reserves have remained intact, available for operating purposes and program expansion, not tied up in property ownership.