Mid Atlantic Real Estate Journal — Spring Preview — April 27 - May 10, 2012 — 19A
www.marejournal.com
C haritable G ifting
By William D. Patterson, Patterson Woods Commercial Properties Charitable gifting through the donation of real estate
D
o you or your client have a property that is difficult to move
appraiser. On the donee side, in addition to real estate and legal representation, specialists such as engineers may be required. In many cases where the charity has neither the time or financial resources necessary to proceed with such a transaction, a third party professional facilitator such as the CCIM Education Foundation can be brought in. The professional facilitator is a 501C3 entity and is already structured to handle real estate donations and for a percentage of the cash received will handle all the facets of the donation on behalf of the charity including
receiving and liquidating the property. There are many individuals, investors and corporate real estate professionals who are faced with non-productive real estate assets which are difficult to move, and even though a cer- tain value can easily be justified, the ultimate sales price may reflect a significant discount. The charitable gifting of that real estate may actually be the best exit strategy when weighing such considerations as timing, economics and public relations. There are many different ways that the gifting of real estate may
be accomplished depending on the donor’s goals. An Outright gift is the most straightforward method of donating a real estate asset the main benefit of which is that the donor may take a full appraised value of the asset as a tax deduction at the time of the title transfer to the charity. The donor also has the benefit of determining the timing of the asset disposal and can mitigate costly delays in transferring title, Bargain Sales are another option whereby the difference between the market price and the sales price is a tax deduct- ible gift, therefore a donor can
receive part of the equity and at the same time have a tax de- duction. Charitable Remainder Trusts can be structured where the real estate is utilized as a funding source. In this case the donor deeds the property into an irrevocable trust whereby the donor receives an income stream and upon termination of the trust the charity receives the remain- ing assets. Through a Charitable Remainder Trust the corporation or individual avoids capital gains taxes, receives a tax deduction and cash flow. Bequeaths and Retain Life Estates are estate continued on page 21A
or cannot be sold at a price that makes e c o n o m i c sense? There may be a vi- able alterna- tive. C h a r i - table gifting
William Patterson
through donations of Real Es- tate is one of the most under- utilized methods of transferring real estate assets. In the US approximately 300,000 billion work of assets are given to over 1,300,000 501C3 charities an- nually, however, less than three percent of that amount involves real estate equities. Capital wealth in the United States ap- proximates 64 trillion dollars with real estate encompassing 27 trillion or 43%. Why is there such a disparity between the value of the amount of real estate available for con- tributions to charities and the amount that is actually donat- ed? The answer can be as simple as the investor/owner either an individual or a corporation is un- aware that a donation could be a means of disposing of a property. However, on the charity side it is estimated that charities turn down real estate eighty percent of the time it is offered to them. Why is that? There are many reasons, the simple answer is that in most cases it is the fear of what they the charity does not know. Unfortunately, many individuals with development responsibilities within the chari- table institutions are familiar with the infamous Boys Scouts of America Real Estate donation case. In a nutshell, the Scouts were given an environmentally impacted tract of land located outside of Chicago which ulti- mately cost the organization millions. By insuring that the charitable entity has the abil- ity to perform the proper due diligence to analyze the property thoroughly is one of the roles of the real estate broker. The re- sponsibility in the world of real estate gifting is to ensure that all parties are fully and clearly represented. Unlike standard real estate transactions where legal representation is sufficient gifting of real estate involves a team which in many cases is co- ordinated by the real estate bro- ker. On the donor side the team includes an attorney, a financial planner, an accountant and an
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