What is the Profile of a Likely Real Estate Donor?

By Dennis Bidwell
October, 2015

Based on survey results and years of collective experience of those of us who are practitioners in the real estate gift field, it is possible to describe the profile of the individual or couple who make substantial gifts of real estate. I venture to say that at least 80% of real estate donors fit this pattern:

  • Age 65 and older
  • They own multiple pieces of real estate, typically in multiple states
    • The more geographically dispersed the properties, and the more jurisdictions with which they are dealing (property taxes, income taxes…), the more likely they are to be a real estate donor
    • The gift property is only occasionally one’s primary residence. It’s much more likely to be a vacation home or an investment property.
  • The property being considered for gifting is usually appreciated in value
  • Ownership and management of one or more of their properties is becoming more burdensome than it is enjoyable.
    • Opening and closing the property every year, paying increasing property taxes, worrying about future roof replacements – the cumulative effect of this causes many second home owners to decide to dispose of their property, one way or the other
  • They either have no heirs, or their children are otherwise provided for in their estate planning
    • Typically, if there are children, they have moved away and are no longer using, for example, the family summer home on the coast
  • They have the capacity to use a considerable income tax deduction.
    • Often this is not just because of their normal adjusted gross income but also because of a pending sale of a family business, or of another appreciated property, thus triggering large gains in search of deductions.
  • They have charitable motivation

And here are other situations that often lead the property owner to consider making a gift of real estate:

  • They are wary of marketing the property themselves, and having to face the emotionally-troubling reality that their property is now worth, say, “only” $850,000, as opposed to its value of $1.2 million a few years ago.
  • They may want to supplement their retirement income by converting a “non-performing” real estate asset (i.e., an asset generating no income) into income, either through a Charitable Remainder Trust or a Charitable Gift Annuity.
  • They may want to resolve, once and for all, a long-simmering debate within the family about the fate of the shoreline property.
  • They may want to continue using their property for the rest of their lives and then gift it to a non-profit of meaning to them, but they want to generate a tax deduction now for their gift (i.e., they want to make a current gift subject to a retained life estate)

There are also ways in which real estate donors often differ from the profile of a typical planned giving donor:

  • They may not have a strong giving record to your institution.
  • They may not show up in your organization’s wealth screening.

Let me say something more about the motivation of folks who make real estate gifts. Two surveys – one of the membership of the Partnership for Philanthropic Planning and one of the membership of Planned Giving Group of New England–yielded this clear conclusion about the three principal motivations that drive property owners to gift their properties:

  • Support for the mission and good work of the organization.
  • A belief that the real estate gift would fit well with their tax-planning, i.e. they could use the deductions (and benefit from the avoidance or minimizing of capital gains exposure)
  • They are ready to get out from under the ongoing responsibilities and hassles of continued ownership and management of the property.

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.

Case Study: Gift of Texas Ranch Subject to Retained Life Estate

Case Study: Gift of Texas Ranch Subject to Retained Life Estate
by Dennis Bidwell
June 2012

Take-aways from this gift scenario:

1.  A retained life estate gift can accomplish essentially the same charitable results as leaving a property by bequest, with two important exceptions:the owners are entitled to a current income tax deduction when they donate the property subject to a retained life estate (unlike a gift by bequest); and the donors can enjoy the satisfaction, and praise, for making the gift in their lifetimes, rather than such recognition coming posthumously.

2.  In the case of a property gift likely to generate a very large tax deduction, the donor can make fractional interest gifts over time, thus spreading out their tax deductions over sufficient time to enable use of such large tax deductions.

3.  The non-profit recipient of the gift, based in Virginia,  was able to assemble a team of experts to structure and close this gift in Texas.  Such expertise had its cost, but was well worth it in relation to the ultimate value of the gift.

George and Jennifer Jackson were owners of a 150-acre ranch in Karnes County, Texas, that they used on the weekends and as a base of operations for their frequent birding expeditions.  Their primary residence was on the outskirts of San Antonio.

Read more…

What is the Profile of a Likely Real Estate Donor?

What Is the Profile of a Likely Real Estate Donor
by Dennis Bidwell
June 2012

Based on survey results and years of collective experience of those of us who are practitioners in the real estate gift field, it is possible to describe the profile of the individual or couple who make substantial gifts of real estate. I venture to say that at least 80% of real estate donors fit this pattern:

  • Age 65 and older
  • They own multiple pieces of real estate, typically in multiple states
    • The more geographically dispersed the properties, and the more jurisdictions with which they are dealing (property taxes, income taxes…), the more likely they are to be a real estate donor
    • The gift property is only occasionally one’s primary residence. It’s much more likely to be a vacation home or an investment property.
  • Some of their real estate is quite appreciated in value
  • Ownership and management of one or more of their properties is becoming more burdensome than it is enjoyable.
    • Opening and closing the property every year, paying increasing property taxes, worrying about future roof replacements – the cumulative effect of this causes many second home owners to decide to dispose of their property, one way or the other
  • They either have no heirs, or their children are otherwise provided for in their estate planning
    • Typically, if there are children, they have moved away and are no longer using, for example, the family summer home on the coast
  • They have the capacity to use a considerable income tax deduction.
    • Often this is not just because of their normal adjusted gross income but also because of a pending sale of a family business, or of another appreciated property, thus triggering large gains in search of deductions
  • They have charitable motivation

And here are other situations that often lead the property owner to consider making a gift of real estate:

  • They are wary of marketing the property themselves, and having to face the emotionally-troubling reality that their property is now worth, say,  “only” $850,000, as opposed to its value of $1.2 million a few years ago.
  • They may want to supplement their retirement income by converting a “non-performing” real estate asset (i.e., an asset generating no income) into income, either through a Charitable Remainder Trust or a Charitable Gift Annuity.
  • They may want to resolve, once and for all, a long-simmering debate within the family about the fate of the shoreline property.
  • They may want to continue using their property for the rest of their lives and then gift it to a non-profit of meaning to them, but they want to generate a tax deduction now for their gift (i.e., they want to make a current gift subject to a retained life estate)

There are also ways in which real estate donors often differ from the profile of a typical planned giving donor:

  • They may not have a strong giving record to your institution.
  • They may not show up in your organization’s wealth screening.

Let me say something more about the motivation of folks who make real estate gifts. Two surveys – one of the membership of the Partnership for Philanthropic Planning and one of the membership of Planned Giving Group of New England–yielded this clear conclusion about the three principal motivations that drive property owners to gift their properties:

  • Support for the mission and good work of the organization.
  • A belief that the real estate gift would fit well with their tax-planning, i.e. they could use the deductions (and benefit from the avoidance or minimizing of capital gains exposure)
  • They are ready to get out from under the ongoing responsibilities and hassles of continued ownership and management of the property.

Significantly, this third motivation – ready to let go of the increasing hassles of owning the property – shows up as equally as important as the other two, more traditional, donor motivations: charitable intent and tax planning.

It is this motivation for many of today’s real estate gifts that suggests a critical part of the marketing message for the many organizations that have in recent years ramped up their marketing and outreach efforts pertaining to real estate gifts.

I will have more to say about such marketing and outreach activities in my next article.

Real Estate Gifts: A Report from Practitioners in the Trenches

Real Estate Gifts – A Report from Practitioners in the Trenches

As real estate gift activity continues to increase – especially at institutions actively promoting their interest in real estate gifts – more and more professionals are concentrating on the growing field of real estate gift planning.  In my work, I often confer with colleagues specializing in this discipline.

This issue of my newsletter is entirely devoted to recent trends in the real estate gift arena, based on my experience working with a range of clients, and on my conversations with three trusted colleagues: Chase Magnuson,  Director of Planned Giving-Real Estate at George Washington University; Harry Estroff, Real Estate Gift Manager at The Nature Conservancy; and Jerry McCarter, Professional Advisor Relations Officer at the Minnesota Real Estate Foundation.

Overall real estate gift trends

Among organizations with which I’m working, real estate gift activity is clearly up at institutions that have decided they want to be more proactive in making real estate gifts happen, e.g. marketing, initiating conversation with promising real estate gift prospects, gift officer training, etc.  For organizations that aren’t specifically promoting their interest in real estate gifts, it is my experience that they generally continue to receive the occasional inquiry at about the same rate as in previous years.

Chase reports real estate gift activity at GWU has increased dramatically in recent years, which of course coincides with the time period that GWU decided to invest in a dedicated staffer to pursue real estate gifts.  Jerry reports that the Minnesota Real Estate Foundation completed 15 gifts in 2010, compared to 5 in 2009.  He reports new real estate gift prospects are emerging at the rate of two to three per month.  Harry reports that The Nature Conservancy’s overall number of real estate gifts has declined in the last two years, but that the average gift size has increased.

The most frequent real estate gift structures

My experience is that the most dramatic increase in real estate gift activity is in the area of outright gifts, followed by charitable gift annuities funded with real estate.

At The Nature Conservancy, the trend has been fewer life income gifts and more outright gifts and retained life estates.  The Minnesota Real Estate Foundation also reports outright gifts as the most popular gift type, with numerous inquiries about Charitable Remainder Trusts. GWU reports continued strong interest in both CRTs and CGAs as ways to provide income streams to donors.

What is motivating the real estate donor these days?

We are all in agreement that most donors of real estate these days are motivated by a desire to rid themselves of the headaches of owning and managing property they no longer use.  Generally, charitable intent is equally important.  The trend is that use of tax deductions, and desire for an income stream, are less a part of the motivation than they might have been in earlier years.

I have found that the most successful marketing efforts explicitly appeal to older property owners who may be facing decisions about what to do with seldom-used property that is now more of a burden than it is enjoyable.

Who are these donors, and what properties are they giving away?

The most common real estate gift scenario for the Minnesota Real Estate Foundation is the over-60 donor looking to make a gift of a debt-free vacation property or raw land.  The Nature Conservancy has seen a marked increase in inquiries from donors without a history of supporting the organization who are challenged by the difficulties presented by current market conditions.  For George Washington University, a common fact pattern is folks in the 70 to 85 range looking to dispose of a residential property in order to get rid of management headaches and produce a life time income.

My own experience is that the most common real estate donor profile is an over-70 individual or couple, with multiple properties scattered geographically, looking for help in disposing of a second home, who often times have not previously shown up on the radar screen of the non-profit they wind up giving their property to.  Also, we know from the most recently-available IRS data (2007) that the average size of reported real estate gifts for donors over 65 (the vast majority of such donors) was $787,000.

How do real estate gifts find their way to you?

The Minnesota Real Estate Foundation has been especially successful cultivating relationships with financial advisors, attorneys and CPAs who are their best referral sources. The Foundation’s partner organizations, armed with marketing material from the Foundation, also produce a significant number of referrals.

George Washington University has had considerable success training its major gift officers to initiate conversations with donor prospects identified by a prospect research team focusing on owners of multiple pieces of real estate. Similarly, The Nature Conservancy benefits from their army of well-trained field fundraisers exploring the full range of assets, including real estate, with their donor prospects. TNC also generates many inquiries through its excellent real estate gifts website.  (I recommend it to all my clients: http://giftplanning.nature.org/giftguide/)

Though some institutions have generated gifts through mailings highlighting the story of actual real estate donors, the trend seems to be greater results from web pages that specifically highlight real estate as an asset to be donated. But the one trend that tops them all is the success of those development shops that focus prospect research on real estate donors, and then encourage (or require) their trained gift officers to initiate real estate conversations with prospects.

What is your advice to other non-profits interested in ramping up their real estate gift activity?

The themes that emerge from our collective experience are:

  1. Seek professional help in developing real estate gift acceptance policies and procedures appropriate for your organization.
  2. Find a combination of in-house staff eager to be trained, and outside consultants, who can evaluate gift opportunities, structure and close the gifts.
  3. Make sure that all staff and board members fully understand the organization’s interest in real estate gifts, and that they feel comfortable at least starting the discussion with donors when appropriate.
  4. Be patient. Understand that an investment of time and money will be necessary, but that with patience it will pay off in the form of substantial real estate gifts.

And finally, as a reminder that organizations that follow these practices are successful in attracting real estate gifts, a national survey of almost 600 non-profits conducted by the National Committee on Planned Giving (now the Partnership for Philanthropic Planning) in 2008, revealed that 13% of survey respondents – virtually all of which employed the steps outlined above – reported that 10% or greater of their total giving in recent years had been in the form of real estate gifts.