How a Family Office Can Use Real Estate as a Gift

REAL ESTATE : FOR GOOD

By John M. Hayes – American Heart Association

Publisher ‘s Insight: When people think of real estate, typically they do not think of gifting it. In this article, John Hayes of the American Heart Association does a good job explaining how real estate can be used for much more than a traditional investment.

Most conversations involving real estate center around buying and selling. Success is easily measured on profit sheets and within total asset inventories. But what if real estate can be used to acquire greater success?A success that is defined not by traditional gains and losses but by impact? The impact of real estate could translate into saving lives, improving communities, providing education to children, access to stronger systems of healthcare and much more. This type of success is made possible through your support of your favorite charity. What if you could accomplish both? A positive income stream from your real estate AND impact your community, provide education to children, etc.?

OPTIONS FOR GIFTING REAL ESTATE

An outright gift of real estate can be made by transferring full ownership of a property to your favorite charity. As the donor, you receive a tax deduction for the fair market value of the property. If the property has appreciated in value, you also bypass 100%of the capital gains tax liability, making this a great option benefiting you as the donor and making a direct impact for a cause that you care about. The tax benefits of an outright gift of real estate might be appealing, but if you would either like to partner with multiple charities to create meaningful impact or you would like some time to involve your family in your

“The impact of real estate could translate into saving lives, improving communities, providing education to children, access to stronger systems of healthcare and much more.”

philanthropy, transferring real estate into a donor advised fund (DAF) will provide you an ideal opportunity to do all of that. Just as with an outright gift directly to a charity, you receive a tax deduction and bypass capital gains tax with a DAF. Once the fund liquidates the property, you can recommend grants immediately from your DAF to your favorite charities or choose to delay your giving to a time that fits your lifestyle. DAFs are a wonderful tool to use in establishing a legacy of giving. Family and friends can be part of the process of distributing grants and can even be named successor grant advisors to allow your fund to last beyond a single lifetime and for generations to come.

If you want to use your property to make a gift to your favorite charity but could use a steady stream of income either now or sometime in the future, a charitable gift annuity should be considered.

With a charitable gift annuity, the charity of your choice will provide you and/or a loved one a fixed percentage of the value of the real estate you donate every year for the rest of your life. Payments are based on the age of the annuitant(s) at the time of the gift and will never increase or decrease, providing stable income regardless of the current financial environment.

The balance in the annuity will then support the charity’s mission at the end of the contract. Creating a charitable gift annuity for the benefit of loved ones also passes on awareness to your family of the charitable causes that are meaningful to you.

If you are interested in a stream of income but want your gift of real estate to benefit more than one charity or you want the income from your gift to be paid to more than two individuals, a charitable remainder trust could be the vehicle that helps you reach your goals as well as establish your legacy.

By transferring property into this type of trust, income will be paid out to you or individuals you select while also bypassing 100%of the capital gains tax on the property. In addition, you would also receive an immediate income tax deduction based on the payout rate and the anticipated length of payments.

Not ready to donate your property quite yet? By gifting real estate in your will or trust, you can continue to use the property during your lifetime but also provide for your favorite charitable causes once you no longer need the property. Making a bequest does not provide an immediate tax deduction but can be accomplished with a simple codicil in your will and will not affect your current household budget or limit your use of the real estate you own.

Finally, a retained life estate can be established if you want to continue to use the property for the rest of your life but also could take advantage of an immediate tax deduction. In exchange for your irrevocable gift, you receive an immediate income tax deduction based on a percentage of the property’s value. Since you still own the property during your lifetime, the expense of property taxes, insurance and maintenance would still be your
responsibility. Even though the future interest is given to charity now, the property will not be used to carry out charitable activity until the property is fully transferred to
the charity.

REAL ESTATE IN ACTION

Sally, a lifelong annual supporter of the American Heart Association motivated by her mother?s life being cut short when she suffered a massive heart attack at the age of 68, had a rental home that her and her late husband bought over 40 years ago. Over the years the home was fully depreciated and if sold would have been subject to a significant capital gains tax on the home?s increased value. Sally liked the income that the rent provided but being a landlord was becoming increasingly challenging.

While looking for a solution to her predicament, Sally learned about a charitable gift annuity. At her age she qualified for a 7.6%payout rate while generating an income tax deduction that she could use in the current year as well as rollover any unused portion of the deduction for the next five years.

Sally requested a personalized charitable gift annuity illustration from the American Heart Association and was pleased to learn that the rental home could be used to fund the annuity. While reviewing her illustration she quickly realized that after considering her net profit from the rental home that a charitable gift annuity would provide her with a few hundred dollars more a year in income without the hassle of being a landlord.

Beyond the financial benefits of creating a charitable gift annuity with Sally’s property, the association will be able to establish a research grant in memory of Sally’s mother at the end of the contract term that will focus on cardiovascular disease research in women.

Sally always wished she could make a bigger impact in the fight against heart disease but always worried about how it would affect her cash flow. It has been over a year now since Sally established her charitable gift annuity with the American Heart Association and her only regret is that she didn’t learn about the opportunity sooner.

NEXT STEPS

There are many options when using real estate in your philanthropy. When deciding when, what and how to make the biggest impact with your charitable gifts while taking into consideration specific real estate you own it is always best to consult with your professional advisors as well as the charity or charities you would like to support. Not all charities offer all giving options as some may not be able to accept more complex arrangement beyond will bequests.

Real estate can expand your options and play an active role in your current impact on social causes as well as establish a legacy that will benefit generations to come. Before limiting your conversations regarding real estate to just buying and selling, consider replacing that?For Sale? sign with a?For Good? sign instead. Reach out and request a personal conversation to discuss your options with a charity of your choice.

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