If it looks too good to be true…

Real estate booms are exhilarating to be a part of, especially if you are one of the early entrants into a booming market. But as with all highs, there must be a low. And with any downturn, there is a fascinating mix of fear and opportunity, especially for property owners who feel that donating their property to a local charity may make sound financial sense.

For some charities, an offer of real estate is an exciting event. For others, there is much fear and hesitation surrounding the complexities of how to embrace this type of donation.

But no matter how charitably inclined a donor or well-intended the gift, charities must exercise due diligence in accepting offers of real estate, land, art, collections or other non-cash gifts. If you are a donor who is interested in donating property, you may not be aware of the legal and fiduciary steps charities must take to finalize the gift and to be in compliance with IRS guidelines and restrictions.

Most charities use something called “gift acceptance policies” to guide how they accept gifts of cash, appreciated assets, property, art, or other assets. A review of gift acceptance policies will guide the charity in responding to the donor and it is reviewed by the finance committee or asset committee of the board of directors each year. A formal policy protects the nonprofit by identifying all of the research and documentation needed to accept the gift. In most cases, real estate offers must be reviewed by the finance committee, nonprofit staff, legal counsel and other professionals as needed. If accepted by the relevant committees, the board of directors will hold a final vote.

But even before a charity consults the gift acceptance policies, the agency will try to determine the validity of the offer by asking key questions of the potential donor.

Consider the source

Does the offer originate from a loyal donor who has given faithfully for many years? Or is the person unknown to the organization or does not live in the area? Trust your gut. If the person is vague about the gift or the offer seems too good to be true, a charity should pass. The same goes for individuals who want to rush the process or who get defensive when the charity asks specific questions. On the other hand, a loyal donor may be coming to a charity because they don’t know where else to turn and has legitimate questions about the process. The charity and the donor can then move to the next step.

What is the exact offer?

It may take two or three conversations with the donor to determine the scope of the gift. Charities will gather specific facts about the property, the collection or the home. Is the potential donor working with an attorney, an accountant, or other professional advisor? If not, it is in the interest of all to advise the donor to seek professional guidance so that they will be fully informed about the impact of their decision. The charity may find that the property is in another state or in ill-repair, which may be too much of a burden for the nonprofit to handle.

If the organization finds that the offer has merit, then it may choose to begin a formal data collection phase.

Gift acceptance requirements

Following is a partial list of the items that many nonprofits require for gifts of real estate: the exact legal name of the donor and the federal I.D. number; a description of the property; a description of any buildings or other structures located on the land; a boundary survey of the property with the location of all structures, easements and encumbrances appearing on the face of the survey; information regarding a mortgage, if any; information regarding existing zoning status; information on all ingress/egress for the property; a description of prior use of the property; and a description of use of the surrounding property, with specific disclosure of any storage tanks or potential environmental factors affecting the property.

In addition, there are appraisals, environmental reports, tenant/lease issues and other legal documents that need to be generated. The charity may require that the actual gift value not be finalized until the asset is sold. Additionally, the charity may require that until the property is sold, the donor must provide for obligations such as taxes and insurance.

An attorney who specializes in real estate law can help create a proper checklist of items.

Once a charity has gathered the information and evaluated the gift, it can make an informed decision.

Careful consideration of offers of real estate, land, art, collections and other noncash gifts will enhance the charity’s credibility and the donor’s trust. It is far better to refuse a questionable offer and know that the charity provided the donor with clear counsel than to accept a gift that could possibly hurt the charity or the donor relationship. Whether you are an individual donor or a charity, consultation with a professional advisor is very important.

The Southwest Florida Community Foundation accepts gifts of real estate and examines each offer carefully to determine that the gift is in alignment with best practices. The charitable intent of the donors is also considered, and we work with each potential donor to determine the best outcome possible.

If you are a donor who is interested in donating real estate to a charity, check with your professional advisor or contact the Southwest Florida Community Foundation at 274-5900. 