A charitable bequest involves giving part or all of a deceased person’s assets to one or more designated charities, by using specific instructions in a will. Technically, bequests relate to personal property and devises relate to real property, but “bequest” is often used as an umbrella term for both. Many people donate money and other valuables to charity over the course of their lives. Others consider charitable contributions, but never find the right time to give. Regardless of a person’s lifetime philanthropic history, the decision to include donations of land, buildings, and/or easements as part of an overall estate plan offers a viable way to leave a legacy.
Statistically, real property donations tend not to be a primary source of funding for charitable organizations. Unlike gifts of money or other more liquid assets, real property gifts, and especially bequests, do not arrive at regular times during the year, nor are the amounts consistent. In addition, property values are highly variable, which can create challenges for incorporating such contributions into projected budgets.
The most recent IRS analysis of the information for individual donors is found in the Winter 2013 IRS Statistics of Income Bulletin. Figure C (pg. 66) shows the changes in individual noncash charitable contributions, as reported, from 2005-2010. Within that time frame, real estate contributions peaked overall in 2007 at approximately $8 billion, with a steady downward slide to approximately $3 billion for tax year 2010. The statistics also factor the dollar amount of the deduction taken, so the challenges within the housing market might also contribute to the apparent decline.
Why might someone donate assets to a charity? Some people prefer not to leave their estate to family or friends. Others want to commemorate a life event or to bestow an honor in a loved one’s name. Whatever the motivation, charitable donations offer a way for people to provide continuing support for causes that matter to them.
Donors have many things to consider when adding a charitable bequest to a will. Selecting a charity is the first step. For those with a history of giving to specific groups, this choice is usually less complicated. For others, the options can be daunting. A good place to start is with a website such as charitynavigator.org ,which ranks hundreds of charities based on accountability and transparency.
What about taxes? Many charities are designated as 501(c)(3) non-profit organizations with the IRS, giving them tax-exempt status.As such, donations to these exempt charities might also provide tax deductions for the estate. Other types of non-profit organizations might be eligible to receive tax deductible donations as well, so check the IRS website for the most current information. Be advised that states have different requirements for estate taxes, so contact a local estate planning attorney or other tax professional to verify this information.
Define the distribution and nature of the bequest. May the charity use the bequest however it sees fit, or can the donor specify its application? Should the real property be sold prior to the donation, or conveyed as a physical asset?
Will the organization accept the property subject to a reserved life estate? A life estate exists when a real property owner executes and records a deed transferring ownership to an individual, trust, or entity, but retains the rights to live in and use the property until the named owner dies. In most cases, the living owner is also responsible for property taxes and maintenance expenses. Some charities encourage this form of donation, while others might view it as a reason to disclaim (refuse) the gift.
Gather the necessary details about the charity. See if it provides a specific bequest form. Many do, especially the more established ones, and those forms contain useful information such as tax-exempt status and the charity’s full legal name. The form DOES NOT replace a will, but it may assist in its preparation.
Understand the laws relating to transferring ownership by bequest. Does the state require the beneficiary to record affidavits of title transfer, or is a warranty, special warranty, or quitclaim deed more appropriate? Does the donor’s state have any specific laws relating to family or marital obligations?
Before finalizing any bequests of real estate, check with the intended recipient to confirm the most favorable way to structure the donation. In addition, communicating with planned giving specialists helps donors understand more clearly what the organization needs, determine whether such gifts must be approved prior to donating, and clarify what documentation might be necessary from both the donor and the recipient once the donor dies. In fact, representatives from the charities contacted for this article (see below) agree that, because each situation is unique, it works to everyone’s advantage to contact them in advance of major donations.
For example, the Arbor Day Foundation encourages members and donors to make gifts of producing farm, ranch, and forest land through their estate plans or during their lifetimes—as well as including other real estate such as homes, in their estate plans. Gift planning coordinator Chloe Sweet expands on this: “The goal of our Conservation Legacy Program is to maintain the property in productive use, implementing best conservation practices to keep it beautiful and bountiful for the long term, with any net proceeds from production used to support the Foundation’s conservation mission.”
Ronald McDonald House Charities of Central Ohio applies a measured approach. Senior Director of Development Megan Koester states that they “accept donations of real estate if they fit within the guidelines of our giving policy and are approved by our Board of Trustees.” Further, when they receive donated property, they typically sell it and place the revenue in their endowment for long term use.
Doctors Without Borders/Médecins Sans Frontières (MSF-USA) is an action-based charity, so accepting donations of fixed assets such as real estate can present challenges for them. Planned giving officer Beth Golden explains, “MSF-USA has limited resources to manage real property. To date, with one or two exceptions, gifts of real property to MSF-USA have been through donors’ estates and the executor or trustee has sold the property and provided the proceeds to MSF-USA. We greatly appreciate these monetary gifts and encourage donors to follow this procedure. If a donor wishes to make a gift of real property to MSF-USA, it is our policy to conduct due diligence to assure that the gift will not create significant liability or expense for MSF-USA and that it is readily marketable.” By donating liquidated assets, the giver makes it easier for the charity to apply the donation to supporting their programs.
Complex valuation and time constraints, as well as the costs often associated with selling or preparing real estate for use, can contribute to the recipient charity deciding to disclaim the gift. A disclaimer is an official rejection of a formal gift. For example, MSF-USA reports that “At the present time, we do not accept property subject to retained life estates.” Ronald McDonald House Charities of Central Ohio explains that they “will always make sure that the property will be valuable to the charity and will help us to meet our mission. If a property is not able to be bought and sold by the charity or if there are any debts or liens, the charity will not accept the property.”
Charitable bequests enable donors to make substantial contributions that might not be possible during their lifetimes. Those considering a philanthropic donation should review their overall estate plan with an attorney or other financial professional to ensure that their assets are distributed according to their wishes.