Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.
Today’s question comes from a fundraiser who needs advice on how to deal with a potential legacy gift that has conditions attached.
Dear Charity Clairity,
About six months ago our college was approached by a local 82-year-old who wants to donate his 5-acre estate containing his home, a very large greenhouse with numerous tropical plants and trees, koi pond, small bridge, swimming pool, and seating area. It is located only five miles from our main campus. He has no one to leave it to, and wants to make sure it’s not developed and remains the same after he is gone. We agreed to keep it the same and turn it into a mental health wellness center where fees would cover the cost of ongoing maintenance. He wants a botanical garden to take it over, and has reached out to numerous prospects; no one will do it because the upkeep is expensive.
I have stayed in touch by calling but want your advice as to what we can do so that he will further explore our offer.
— Looking for a Way Forward
Dear Looking for a Way Forward,
Whenever a donor approaches you regarding a gift with conditions, you must ask yourself whether the benefit outweighs the cost. It can be easy to lose sight of the forest for the tropical plants and trees!
Can you meet the conditions without incurring expenses you would not otherwise consider in the course of pursuing your mission? You’ve clearly already considered this by proposing turning the property into a commercial venture that would support its upkeep. That’s a good start, but you’ll want to further evaluate this proposal because it’s not a “one and done” gift where you accept a property then use it or sell it as you please.
First carefully assess if: (1) this meshes with your college’s goals and objectives, and (2) you have a reasonable business plan suggesting you have a good chance of sustaining this new venture over time.
- In addition to upkeep of the greenhouse, gardens, and pool (which you suggest would be covered by fees), would you have other expenses such as wellness center staff, marketing, and administrative overhead and, if so, do you have a plan to underwrite those expenses?
- Would students potentially work and/or learn there, or would it be purely commercial and unrelated to your mission?
- Have you assessed whether there is a market for a mental health wellness center in this location?
- If there’s a market, would your new business have competition?
- How would you promote the center’s services to the community?
- What kind of budget and staffing will it take to get the center up and running?
- What is your timeline to become financially viable, and can you underwrite costs until then?
- If the center turns out not to be viable financially, what kind of agreement would you have with the donor regarding the property’s future?
Turning down a gift can be a tough decision. Realize, however, your organization is legally bound to respect your donor’s wishes when accepting (or later handling) their gift. Seeing multiple other organizations have turned down this gift due to the ongoing expenses that will be incurred should give you pause.
Should you decide to move forward, you’ll want to consult with a legal professional to understand potential ramifications of the gift for both the donor and you. If the donor is taking a tax deduction for the gift, there may be an issue with him making the gift conditional on the use of the property. Generally, for a gift to be tax-deductible, the donor must relinquish control over its use. If a court determines there’s a non-negligible chance the condition cannot be fulfilled at some future point, the deduction may be disallowed. Also affecting a tax deduction is the appraised value of the property. A donor-imposed restraint that the undeveloped property remain undeveloped, even though the property is located in a prime development area, would adversely affect the value of the contributed interest.
To ensure the donor gets his needs met and that all parties are on the same page and acting in good faith, it would be wise to consult a professional to see what is possible prior to having your next conversation with the donor. Try to find someone familiar with property law, tax law, estates, and charitable gifts.
Possibly, once the donor understands all the issues involved and is reassured of your good faith, he will be more willing to accept your offer without including strings. It does not seem he has other viable options. If you and your donor ultimately come to a meeting of the minds regarding the donation you propose, you’ll want to have an attorney carefully draft the deed transferring the property — including any conditions on the gift.
Caveat Emptor: Keep in mind restricted gifts of property can be problematic. As a general rule, restricted gifts tie a charity’s hands, potentially turning public charities into vehicles for implementing private intent and undermining institutional independence. So ask yourself: (1) Will you be better off with or without this gift? (2) Will future college staff, say 20, 30 or 50 years from now, appreciate that you accepted this gift or curse you?
I hope this helps you find a way forward,
— Charity Clairity
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