by Chase V. Magnuson, CCIM
President - Real Estate for Charities
Everyone wants to do something for his or her favorite charitable cause.
Corporations are no different than individuals. Of course, the timing and amount of
donations have to make good business sense.
There are some old stumbling blocks with the gifting process. In the past, corporations
were challenged to liquidate properties in a timely manner while meeting governmental
guidelines and regulations. Even donating property was difficult as the complex legal,
financial and organizational issues associated with real estate discouraged most
non-for-profit organizations from accepting these gifts.
Historically, most charities have been unable or unwilling to accommodate gifts of real
estate. A large percentage of the properties offered as donations are rejected by the
charities. This has been especially true of large multi-use projects and vacant land.
Charities' staffs simply don't have the expertise, or the time, to safely handle such
donations. Their boards of directors discourage such gifts. The times are changing.
Charities need the revenue such donations will generate.
There are now service providers that bridge the gap between the desire of corporations to
give - and for charities to receive donations of nonproductive assets as a means to
provide additional funding for their programs.
Service providers can help facilitate real estate donation programs such as
Charitable Remainder Trust, Donor Advised Funds, and Bargain Sales.
The Straight Gift: Making a straight gift of the property is the
least complicated method of donating a real estate asset. One of the benefits is that your
corporation takes full-appraised value of the asset, as a deduction, at the time title
transfers to the charity.
A second benefit is that it allows you to time the disposal date unlike normal conditions,
which are controlled mostly by the buyer's time schedule. No longer will your corporation
be subjected to costly delays in transferring title. You choose the quarter or fiscal year
that benefits the corporation most.
Bargain Sales Option: Your Corporation can use this technique to
receive part of your equity in cash and the balance of the appraised equity becomes a
deductible donation. You pay taxes on the cash portion and use the balance as a charitable
gift tax deduction.
Charitable Remainder Trust (CRT): Using the real estate as the
funding source, your corporation may create a Charitable Remainder Trust. The basic rule
is that corporations can be the trust income beneficiaries for a period up to twenty
years. The charity is the Remainderman of the Trust and receives the corpus of the trust
at termination. Under this scenario the corporation can get an income stream, tax
deduction, and receive a public relation benefit for providing additional funds to their
philanthropic program.
Most corporations appear not to have explored extensively the CRT opportunities. Imagine
the uses for the income stream: employee benefit programs, project development funds,
office relocation or retirement planning.
Donor Advised Fund: Using the property to fund a Donor Advised
Fund provides another opportunity for your corporation. This allows the corporation to
have some input, in perpetuity, in a philanthropic program. The corporation can suggest
how much of their fund can go each year to which charities. This choice ranges from no
distribution in a given year to total trust liquidation. This provides flexibility in
charity selection and desired support levels.
What type of properties might be considered?
Office buildings
Warehouses
Manufacturing plants
Vacant land
Corporate retreats
Land leases
Partial ownership positions
Hotels
Marinas
Mineral rights
Air rights
Timber rights
International assets
These new opportunities may provide an exit strategy for corporations who own
negative cash flow properties and at the same time create major funding for the charitable
world. Why wouldn't your corporation seize this opportunity? It is time to explore the
potential benefits this approach offers a creative chief financial officer.
It is time for the charities and donors to reconsider using real estate equities as a
funding tool.
For more information on this subject, please contact:
