Giving Outside The Box
A couple in southwest Minnesota decided it was time to scale back, and they wanted to use their retirement from farming as a way to help others. While they certainly could have written a check to their favorite nonprofits, they went another route.
In fall 2010 and spring 2011, they gave the Mayo Clinic Health System Southwest Minnesota 80,000 bushels of corn, 25,000 bushels of soybeans, and farm machinery including a rock picker, a manure spreader, and a large combine. The couple made the donation by way of a trust that was funded with the sale of the items, collectively valued at $1 million.
“They decided to fund our nursing education endowment for Southwest Minnesota,” says Rick Kimbrough, chief development officer for the health system, one of several regional branches of the Mayo Clinic. “The benefactors grew up in the town where they made the gift, and they care about local health care in the community. They wanted to make sure it’s a viable place to live.”
The atypical gift wasn’t the first one Mayo had received; over the years, it has accepted everything from gold coins to real estate. But the situation is one that the organization is seeing more frequently these days, Kimbrough says.
Many nonprofits and colleges share the same observation: Since the economy tanked and people saw their liquid assets lose value, they have sought alternative means to support their favorite charities. They still have an inclination to give but must find new ways to do so, says Sheryl Morrison, a principal in trust, estate, and charitable planning at Minneapolis-based law firm Gray Plant Mooty, which works with both nonprofits and individuals. So donors are increasingly turning to their other assets, including closely held businesses, vacation homes, and farmland.
Part of the move toward giving unusual assets—items beyond cash or appreciated stock—stems from the fact that America is in the midst of a massive wealth transfer that began in the late 1990s and will continue through the 2050s: An estimated $41 trillion will be passed from one generation to the next during that period, and national projections indicate that $6 trillion of that sum will go to charities. The retirement of the Baby Boomer generation is another factor; many are leaving work with smaller 401(k) or IRA accounts.
“You have people who are feeling less secure financially,” says Morrison.
“There is a sense of instability about the future and their finances, so they are looking to these other assets if they want to make a gift. It’s often something they aren’t relying on for income, so some give it in a way where they can still use it or receive an income stream off of it during their lifetime.”
Particularly with assets like real estate, many opt to give through charitable remainder trusts, which work like this: Donors place their property or land in a trust, and the trust sells it. The donors don’t have to pay capital gains taxes on the sale, like they would if they provided a direct gift, and they receive an income stream from the trust for the rest of their lives. When they die, what remains in the trust goes to the charity or charities of their choice.
Kimbrough says his organization has received several gifts through charitable remainder trusts, including the one from the farm couple. For many people, their biggest assets are their homes or businesses, and those assets offer the best opportunity to make a large gift.
“A lot of folks work their entire lives on these closely held businesses or farms,” says Kimbrough. “They want to realize some level of equity in that business, but they are charitably inclined, so they . . . give a gift and provide themselves with income. We’ll take it either way.”
Morrison’s firm has worked on about six different donations of farm commodities in the past several years, as well as eight to 10 transactions through which donors gave portions of their businesses to nonprofits. That’s quite an increase, with the firm previously handling about that many unusual gift transactions in a decade.
Another reason that Mayo Clinic Health System Southwest Minnesota and other outstate Minnesota nonprofits are seeing increases in unusual gifts is that development officers have learned to ask potential donors about their non-cash assets. In addition, some organizations have offered training to lawyers, accountants, and financial planners in smaller communities about handling these types of gifts, notes Bradley Reiners, a major gift officer for the Mayo Clinic Health System Southwest Minnesota.
Inquiries into Action
Other nonprofits report fielding more calls from donors interested in giving them atypical gifts.
In fact, to help donors leave such gifts to Second Harvest Heartland, the St. Paul-based hunger relief organization is creating a new Web portal. It will be filled with information about the various ways to make a planned gifts, from traditional contributions like will bequests to retirement plan designations, life insurance policies, and more.
At Second Harvest Heartland, development staff has received weekly calls—and even daily inquiries in December—about making gifts other than cash, says Jennifer Halcrow, vice president of major gifts. While each call didn’t necessarily translate to a gift, “it’s a great sign that people are thinking more broadly about various tools they can bring to bear on the charitable goals they have,” she says.
Second Harvest Heartland recently learned that it will benefit from a gift of farmland. The donor placed some of her land in a trust that will be liquidated when she dies, with the funds benefiting the organization. “It’s a more unusual asset than we’ve seen in the past, but the farmland ties in closely with the work we’ve been doing on agricultural surplus rescue,” says Halcrow. “Our mission is to end hunger through community partnerships, and one way we do that is to have fresh food and more nutritious food for [agency partners] to offer.”
There is certainly more for a donor to know when giving an unusual gift as opposed to a more traditional gift like cash. Experts say the process can be a bit more complicated and time consuming, but not overly so. “You have to plan this well in advance,” says Grant Wacker, senior vice president and senior fiduciary advisory specialist at Wells Fargo Private Bank in Minneapolis. “It’s not plan it one week and do it the next.”
In some cases, the donor has a long-standing relationship with a nonprofit and approaches the organization with his or her potential gift idea. Then the discussion begins about the donors’ goals, intentions, and wishes, and whether the nonprofit can accept the item.
Larger nonprofits and foundations typically have in-house development staff that guides donors as they move through the process. Others turn to partners like Wells Fargo, which can help them with the logistics involved in accepting a piece of donated land or partial ownership of a business.
Wacker recently worked on an unusual gift bestowed by a business owner and inventor, who held a patent not owned by her company. She entered into a charitable gift annuity with a large nonprofit, which accepted it as a gift and eventually sold it—and the organization expects to benefit from the remainder interest at the end of the gift annuity term.
Separately, when the donor sold her company, she created a charitable grantor lead trust, which provided her with a charitable deduction for that year. The trust makes a donation to the nonprofit annually, and the remainder of its funds will go to the donor’s children in 15 years.
“By virtue of the lead trust, the donor provides annual charitable gifts during her lifetime,” says Wacker. “These transactions had the impact of reducing some income taxes caused by the business sale, provided her with retirement income, and also deferred some and reduced some income taxes in relation to the disposition of the patent.”
Transactions like these, though increasingly commonplace, can “get a bit tricky,” says Wacker. “One of the first things we do when working with a nonprofit is making sure they have a gift acceptance policy. That’s how they work out what they are capable or not capable of doing.”
One part of the policy, for example, might include a gift acceptance committee staffed with people who are well versed in real estate. That way, if a charity receives a piece of land, members of the charitable gift committee can guide the organization through getting the land professionally appraised and assessed for environmental problems, says Wacker. If the land needs a major environmental cleanup, the nonprofit might not want to accept the property.
Or let’s say someone wants to leave a commercial building or part of a business to a philanthropic organization. The organization should have the building evaluated for maintenance issues and determine whether it would be liable for an accident on the property or litigation against the company. The nonprofit is essentially now a business owner, and there might be some costs involved with that, according to Morrison.
But in any case, nonprofits always try to work through the issues. “They still have a gift and more money than they started with,” she says. “You’re not going to look a gift horse in the mouth. You say ‘thank you very much,’ and you just figure out some of the liabilities and some of the other issues.”
When potential donors and nonprofits are discussing a gift or executing it, they typically call on a team of attorneys, accountants, and financial planners to work out all manner of details.
Donors, for example, would want to evaluate the tax implications with their accountant, such as whether it would be more favorable to make the gift in one tax year or the next, Morrison notes. A donor’s attorney can help determine what to donate and then draw up the paperwork for his or her estate.
At St. Olaf College in Northfield, the school’s planned giving team works closely with its treasurer to handle unusual assets once they are left to the college. The treasurer, sometimes in concert with the college’s gift committee, first decides whether an item can be accepted at all. If it’s something like a piano or a painting, the treasurer’s office then decides whether to sell or keep it, often with expert guidance from a music or art professor, says Grace Schroeder Scott, senior development officer for planned giving.
The worst scenario is when a donor leaves an item to a charity without first discussing it with the charity’s staff. Sometimes the item can’t be used to the donor’s precise specification, and it can be challenging for an organization to figure out what to do with the item and how to follow the donor’s wishes as best as it can, says Morrison, adding that she has worked on multiple such cases.
St. Olaf has seen a steady level of gifting of unusual items, maybe with a slight uptick recently because alumni and supporters are living longer and have more opportunity for planned giving, Scott says. But the college has been accepting unusual gifts since its founding in 1874, when benefactors supported its founding with items like livestock, grain, and pieces of land.
Scott spends years building relationships with donors, some of whom end up giving substantial gifts to the college. Past gifts include crops, farm and ranch land, oil and mineral rights, gold and silver, artwork, and stamp and coin collections.
“There is a culture of giving here, where donors consider carefully tailored and thoughtful gift plans that are legacy gifts—ones they give considerable thought to while they are living—and in the end, it’s a plan that involves something near and dear to them,” she says.
One major gift Scott worked on was from a family that owned seven lots and two homes near each other in Door County, Wisconsin, on the shores of Lake Michigan. Neither spouse went to St. Olaf, but both were children of immigrants from Sweden and Norway. They wanted to leave major parts of their estate to St. Olaf and Concordia College in Moorhead, and they worked with Scott to donate the seven lots and two lake homes through a charitable life estate; such estates allow a family to retain use of the property, usually until death.
But several years later, the couple gave the land and homes to the colleges outright. Half of the proceeds went to Concordia and half to St. Olaf, which created an endowed scholarship fund at the couple’s request.
In the end, giving a major item like land or a portion of a business can deeply impact both the nonprofit and the donor, thus creating a legacy for both parties for years to come.