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 Prospect Research

September 18, 2009

It always surprises me when I learn that a non-profit client uses estimates of a prospect’s real estate wealth as one of the indicators pointing to the size of the cash gift they will solicit.  I recently talked with a development officer who was aware that a prospect owns four pieces of property with an estimated total value of about $5 million. He estimated the total net worth ofhis prospect at about $10 million. He then laid out a plan for asking that prospect for a $2 million cash gift.

Why, I asked him, didn’t you just ask your prospect  for one or two of her properties, which she appears to not be using as she ages? Well, I’m just not comfortable talking with folks about the complexities of real estate, he responded.

To which I say: It’s time to get comfortable with at least introducing the real estate topic, knowing there’s expertise waiting in the wings to help you out.

This points to the need for many organizations to think differently about their prospect research.  I contend that organizations should be mining their data bases and their collective organizational histories to identify  prospects who fit this pattern: own multiple pieces of property in multiple states; are age 65 or over; are charitably inclined to your organization.  When this fact pattern is used for screening, very strong real estate gift prospects emerge that in many cases may not have even been rated using traditional prospect rating systems. Identifying real estate gift prospects requires a different approach to thinking about wealth and thinking about donor motivations.

We know from a report on second home ownership prepared by the National Association of Realtors in 2005 that:

  • 1 in 10 households owned 2 or more properties
  • 1 in 25 households owner 3 or more properties
  • 40% of the residences sold in 2005 were either vacation homes of residences owned for investment purposes

Fundraising consultants can provide a valuable service to their clients by reminding them to turn their attention, and that of their researchers, to the real estate holdings of their donor prospects.  Often, friends of the organization that are short on cash and appreciated securities can realize their charitable objectives through real estate gifts they had not previously considered.

For more information on how  Bidwell Advisors can help fundraising consultants to better advise their clients, click here.