Real Estate Gifts and Non-Profit Retirement Communities

October 11, 2010

I have recently had occasion to work with several non-profit retirement communities, helping them attract and structure real estate gifts.  My experience with such communities is that their residents may have disposed of their primary home (though some still own them), but many of them continue to own a summer home on the lake or on the shore, or a farm, or an investment property.  Many times these property owners, as they age, are especially receptive to ideas about how they might dispose of their real estate in a way that benefits charities in their life (including the retirement community)  while addressing their tax planning and/or retirement income needs.

In other instances, I have seen non-profit retirement communities work with prospective new residents to see if a donation of their home could meet the entrance fee (or purchase price) requirements of moving into the community.

I have often wondered why more non-profit retirement communities don’t explore ways that they could provide a valuable service to their residents – helping dispose of increasingly burdensome real estate — while at the same time opening up the possibility of substantial charitable gifts, to their organization and others as well.

Why Not a Charitable Gift Annuity Funded with your Property?

October 9, 2010

Let’s say that you are in your 70s, and have for some years not been getting much use out of your vacation home on the shore. Instead, you’ve been renting it out more and more, and have become rather accustomed to the extra cash flow from your property.

But now, as you age, the hassles of maintaining the property (and of paying taxes, utilities, repairs, etc.) and carrying around that responsibility are starting to outweigh the benefits of property ownership. Which means it’s time to dispose of the property.

Let’s also say that you have watched friends go through this process, and this has left you dreading the task of listing the property, working with a broker, adjusting he asking price, fielding offers, and working the process all the way through to a closing. (Not to mention you’re not excited at the prospect of paying a very considerable capital gains tax upon the sale of your low-basis property.)

So, what is the alternative?

Well, if your financial situation permitted, you could make an outright gift of the property to a charity of significance to you. You would be eligible for a charitable tax deduction equal to the current appraised value of the property, there would be absolutely no capital gains tax paid, you would have made a magnificent gift. And the charity, not you, would assume all the responsibility for selling the property.

If you’re not in position to give it away outright, and instead need a continuing stream of income, perhaps you could talk with a charity of meaning to you about funding a charitable gift annuity with your waterside property. With a gift annuity, you would lock in a steady, regular income stream for the rest of your life, you would generate a substantial tax deduction, and you would pass on to the charity (as in the case of an outright gift) the responsibility for selling the property.

More and more charities are interested in working with property owners on this sort of arrangement, because they have become more adept at structuring the arrangement in ways that minimize the risks that they might need to begin making annuity payments prior to the time they’ve sold the property.  Also, an increasing number of charities are recognizing that many property owners want to roll their property into a steady income stream, not the variable income that would come from a charitable remainder trust.

If the situation above sounds a little bit like yours, talk with your advisors, or talk with your favorite charity, about the possibility of a charitable gift annuity funded by a property that you are ready to dispose of however reluctantly.