Working With Life Estate Gifts

Life estate gifts involve the gift of a personal residence or farm subject to a retained life estate. The retained interest also can be an estate for a term of years.

“Estate” means the exclusive right to occupy or the right to rents (e.g., in the case of a farm leased to a tenant).

“Personal residence” means a house and accompanying land owned by the donor and used by the donor as his or her residence. It does not have to be the primary residence, but it must not be rental property.

In my experience, this sort of gift is uncommon. Which is puzzling, because it’s a good fit for many potential donors: a current charitable deduction with no current out-of-pocket outlay and no necessary change of life style.

There can be problems with this kind of gift, however:

  • The donor is going to have to get a qualified appraisal.
  • If there’s a mortgage on the property, the gift will be a bargain sale.
  • It’s possible the donor at some point will let the property fall into disrepair.
  • It’s also possible the donor will begin at some point to make demands, such as a demand to replace a broken window or a demand to remove a broken tree branch.
  • The donor may fail to make property tax payments.

A side agreement is needed to avoid donor-relation problems, but even the best side agreement is no guarantee that problems will be avoided, particularly if the donor’s mental state deteriorates.

You should either have experience or have an adviser who has experience dealing with this sort of gift if you’re going to work with a prospective life estate donor.

If you want guidance on this sort of gift, be sure to check with your Sharpe Group rep.

By Jon Tidd, Esq

Finding Missing Money

When working on an estate where you are the primary beneficiary, it can be worth checking for lost assets. This is a joint website set up by 42 (so far) state unclaimed property agencies to help find missing assets. Just plug in your or your organization’s name and see what pops up. It also offers links to the federal government for unclaimed U.S. savings bonds and links to other countries, states and Canadian provinces.

I’ve lived in the same location for 24 years. I entered in my name and found missing assets I’ll soon get back. I did the same thing for a Sharpe client that has had several physical and mailing addresses. I located 6 unclaimed assets they are now recovering.

This arose recently when our client heard from a firm offering, for a fee, to collect $74,000 from the estate of a deceased woman. For some reason, they had not located the charity and the assets were turned over to the state. This arises when the charity’s name is wrong or the executor somehow missed an asset. As long as you pay nothing until you receive the funds, this can be a smart decision. Some firms want as much as a 50% “finder’s fee,” so do negotiate the fee. Don’t agree until you have checked to make sure that this is not something you can collect on your own. Over the years, I’ve paid this type of finder’s fees many times. It sounds odd, but these can be legitimate firms to work with.

Keep in mind that paying a finder’s fee to collect a gift already made is quite different from paying a finder’s fee to generate a gift.

By John Jensen

Working With Baby Boomers

Everyone who has worked on lots of planned gifts from Baby Boomers, hold up your hands.

Just as I thought.

Sure, there are gift plans that fit. Lead trusts in some cases. Term-of-years CRTs. Deferred payment gift annuities. Virtual endowments.

The writer hasn’t seen more than a few window shoppers and at most only a couple of buyers among Baby Boomers.

There are several reasons for this. In no particular order:

  1. Baby Boomers are dealing with their own kids. Ever read the news story about the 30-something who has moved back home?
  2. Baby Boomers as a group haven’t saved. They’ve spent.
  3. The huge wealth transfer hasn’t occurred. If and when it begins, many Baby Boomers are likely to stash their inheritances.
    • They’ve got their own retirements to fund.
    • They’re going to live long lives.
    • They’re going to be expected to pay for their grandkids’ education.

Sure, there are good planned gift prospects among Baby Boomers.

But in 2018, the oldest Baby Boomers turn age 72. That’s on the young end of the planned gift donor age spectrum. For this reason alone, Baby Boomers as a group aren’t yet in prime planned gift territory.

Consider targeting the oldest Boomers, perhaps 66 to 72, with ideas about gifts that address the concerns of people who have recently retired or are likely to be retiring.

This blog is mainly about how to direct your marketing efforts. If you’ve got a good planned gift prospect who’s a Baby Boomer, go for it. The only caution is, try not to settle for a benefit that ripens into cash on the table only at the Boomer’s death. Your organization could be waiting a long time.

By Jon Tidd, Esq

Working With Older Donors—Part 2

Older individuals who have inherited wealth are often mistrusting of others, and usually for good reason. There are lots of people who would like to get their hands on the wealth.

Such an individual typically has a few close advisers or confidantes she trusts, and that’s it. The problem often is, the wealthy individual trusts the wrong people. The loyal adviser for many years may be a predator just waiting to get his hands on a fortune.

It’s difficult, at best, for a fundraiser to get through to such a wealthy individual.

When the wealth is considerable but not great, the situation may be quite different. The individual having the wealth may be quite open to dealing with a development officer. At least until he or she becomes ill or otherwise infirm. That’s when predators often move in, encircle the infirm individual, and cut him or her off from the outside world.

Which is why it’s often good to issue a gift annuity, even just a $10,000 gift annuity, to such an individual. The gift annuity gives the issuing organization a reason to be in periodic touch with the elderly person.

Charities should be willing to send the annuity check directly to the elderly individual’s bank but should avoid automatic direct deposit. Direct deposit plays into the hands of predators.

What is there to do if it appears that a good and loyal donor who has become elderly has become encircled and cut off by predators? A good first step is to talk with a good trust and estate lawyer local to where the donor lives … a lawyer who can be trusted and who doesn’t have a dog in the fight.

Depending on the circumstances and local law, it may be possible to get protective measures put in place. Such as by getting a guardianship established. Or by getting the state attorney general to take action.

There are lots of predators in retirement venues such as Florida. And in small towns and good-sized cities that aren’t retirement venues. The predators are cunning and know that charities typically don’t fight when they’re cut out of a will, even at the last moment.

Some charities have a policy of not litigating. Sad to say, but such a policy amounts to erecting a big sign that says, “Predators are welcome to exploit our alums and other donors.”

Don’t let the predators win.

For more information on this topic, read Part 1. You can also read “Avoiding the Dark Side: The Ethics of Gift Planning” from the February 2016 issue of Give & Take and “Dos and Don’ts of Detecting Diminished Capacity” from the January 2017 issue of Give & Take.

By Jon Tidd, Esq

Working With Older Donors—Part 1

A major area of planned gift fundraising is working with elderly individuals. 

Here some problems to anticipate:

The donor repeatedly over time asks the same question or asks for information you’ve already provided. It’s probably best to provide this individual with a postage-paid envelope addressed to you and ask that he or she communicate with you in writing. Your communications of information to the individual also should be in writing.

The donor, you’ve observed, has been speaking or acting somewhat erratically. If you are going to visit this individual, consider taking along a suitable colleague from your office. You may need a witness, for example, to verify that you didn’t make off with the donor’s will or diamond bracelet.

The donor wants you to be her friend. Maybe she even wants to make gifts to you personally. Be careful here not to do anything that can be painted (say, by the grandson’s lawyer) as undue influence. Being friendly to a donor is of course OK. Being friends with a donor can involve major risks.

The donor wants your organization to give him legal advice or to serve as his executor. Nope.

The donor has one or more bizarre ideas or beliefs but otherwise appears rational. Everyone has weird ideas or beliefs. That doesn’t incapacitate an individual from making a current donation or making a will. If you have any concern on this score, try to make sure, as best you can, that a disinterested and competent lawyer is looking out for the donor’s interests.

More thoughts on all this next time.

For more information, read Part 2.

By Jon Tidd, Esq

The Role of State Law in Charitable Gift Planning

Good charitable gift planning often requires an understanding of applicable state law.

Pledges: The enforceability of a pledge depends on the law of the state whose laws govern the pledge. For example, Donor lives in New Jersey and makes a spoken (non-written) promise to give $X to a charity located in Kentucky. If New Jersey law governs the pledge, it’s likely enforceable, because of a fairly recent New Jersey appellate court decision. In any event, there should be a written pledge agreement that should state explicitly whether New Jersey law or Kentucky law governs the pledge.

Gift Annuities: Gift annuities are subject to extensive state regulation. A charity is badly advised to ignore these state laws.

Trusts: Whether a trust, such as a charitable remainder trust, is valid depends on the law of the state whose laws govern the trust.

Bequests: When a charity in State X receives notice that it is a beneficiary under the will of a donor who died in State Y, there may be any number of issues that turn on the laws of State X or State Y.

Document formalities: Document formalities, such as notarization provisions, depend on applicable state law. That’s why, for example, it can be dangerous for a charity in State X to send a written deed of gift to a donor living in State Y.

Local lawyers need to deal with matters of local law.

And by the way, in this arena, what one doesn’t know can hurt one and one’s organization.

By Jon Tidd, Esq

Anticipating and Avoiding Problems

The world of charitable gift planning is a world of well-meaning donors who do a world of good across an incredible spectrum of needs, wants and aspirations.

It’s too bad, but it must not be ignored by gift planners, that the most well-meaning donor can be tripped up by the tax law, be given faulty legal advice, have his or her gift intentions frustrated or otherwise fail to achieve his or her goals in making a donation.

Here, in the writer’s experience, are some of the most common gift planning problems to be anticipated and avoided:

  1. Flawed gift receipts: A huge problem across the board found lurking in charities both large and small. The IRS is aware of this problem area … it represents low-hanging fruit for the IRS.
  2. Flawed appraisals: Another huge problem area for donors who need to obtain a “qualified appraisal.” The probability the appraisal the donor obtains will be a “qualified appraisal” is about zero.
  3. IRA gifts: A cluster of problems here, ranging from tax law uncertainty as to the date of gift for certain IRA distributions to obstacles thrown up to charitable IRA beneficiaries by IRA custodians. Click here to read another IRA gift reporting mistake to help your donors avoid.
  4. Mishandling of trusts and estates: It is truly amazing how donors’ charitable gift intentions get thwarted by fiduciaries (executors, trustees, lawyers, etc.) who mis- or under-perform.
  5. Bad tax advice: You have to see it to believe it.

Keep in mind this prescription: It’s vastly better to anticipate and avoid a problem than to try to solve a problem once it’s arisen.

Also keep this in mind: The best donors often have less than the best advisors.

Click here to read this Give & Take article on tax traps.

We also have an informative white paper you can download, “Gift Substantiation in a Nutshell.” Click here to access it.

by Jon Tidd, Esq

Solutions to a Math (Choke) Lesson in Gift Planning

We left off last time with a challenge to you, the reader, to solve a problem and also to check your solution.

The problem is a real-world gift planning problem. In terms of difficulty, it’s a simple first-year algebra problem

The solution of n, the number of shares to be donated, is given to be: n = 3,000/110, rounded to the nearest whole share. The easy way to solve for n is to do what the writer did. Which is to open up an Excel spreadsheet, format the spreadsheet to calculate to the nearest whole number (0 decimal places) and to type in a cell (any cell will do):


which returns 27. This means we’ve calculated the whole number of shares to be donated to be 27.

Now, in solving math problems, it’s often advisable to check your answer. To check the answer 27, we need to grasp that the answer was obtained by setting the tax savings generated by the number of shares donated (0.4n$200) equal to the capital gain tax generated by the number of shares sold [0.2(100 – n)($200 – $50)].

If we plug in 27 for n, we get $2,182 for the charitable deduction tax savings and $2,182 for the capital gain tax generated.

That is what we want. Checking shows that 27 is the correct answer for the number of shares to donate. (Important Note:  Depending on how you “plug in 27 for n,” you may get slightly different numbers. For consistency, the writer performed all calculations using the same Excel spreadsheet. The slight difference in numbers has to do with how Excel rounds a number with a decimal part to the nearest whole number.)   

Now if this were a real, live case, we’d face the fact that the value of the donor’s stock, assumed here to be $200 per share, likely would be bouncing around day to day. To make our lives easy, we could create an Excel spreadsheet that would perform all the calculations we want based on whatever value we entered for the stock’s value.

Hope this is helpful.

by Jon Tidd, Esq

A Math (Choke) Lesson in Gift Planning

Here are the facts: Donor owns 100 shares of ABC stock, which is publicly traded. Each share is worth $200 and has a $50 cost basis.

What Donor wants to do: Donor wants to donate some of the shares and sell the remaining shares. She wants the charitable deduction for the donation to offset exactly the capital gain on the sale. So that she walks away owing net zero capital gain tax.

Here’s the question: How many shares should she donate? How many shares should she sell?

We need some more information: We need to know the marginal income tax rate against which the charitable deduction will apply. Let’s assume it’s 40 percent (0.4). We also need to know the applicable capital gain tax rate. Let’s assume it’s 20 percent (0.2).

Here we go: It’s all a matter of logic.

1. Donor is going to give n shares. She is, therefore, going to sell (100 – n) shares. We want to find n.

2. The tax savings produced by the gift will be 0.4n($200), which is $80n.

3. The capital gain tax for each share sold will be 0.2($200 – $50), or 0.2($150), or $30.

The capital gain tax for (100 – n) shares sold will be $30(100 – n), or ($3,000 – $30n).

4. Now, Donor wants the tax savings from her gift to offset (be equal to) the capital gain tax on the shares sold.

This means:  $80n = $3,000 – 30n.

5. Solving: $110n = $3,000. n = 3,000/110

You have two tasks: [1] Find n to the nearest whole share. [2] Check to see that this value of n achieves Donor’s goal.

Further discussion next time.

by Jon Tidd, Esq

Gift Substantiation: Two Recent Tax Court Cases Are Revealing

What they reveal is how tough the IRS and the Tax Court have gotten on gift substantiation . . . gift receipt and “Qualified Appraisal” rules.

The first case involves a gift of real estate to the University of Michigan. The donor was a partnership that had purchased the real estate for $2.5 million. More than one year after purchase, the partnership gave the real estate to the university. The partnership claimed a value of $33 million for the property.

The partnership got an appraisal and filed a Form 8283. For some unknown reason, the Form 8283 failed to state the partnership’s cost basis in the donated property, which was $2.5 million.

Held, this omission, all by itself, was sufficient to knock out the entire $33 million charitable contribution claim(!). RERI Holdings, 149 T.C. #1 (2017)

The second case involves some out-of-pocket cash expenditures made by a volunteer on behalf of a charity (a little more than $1,000 in each of 2012 and 2013). The expenditures related to mileage and the purchase of T-shirts for a youth group. The volunteer had a written mileage log and also a purchase receipt for the T-shirt, but the volunteer didn’t have a gift receipt from the charity.

Held, the failure to obtain a gift receipt (which needed to state whether the charity provided any goods or services to the volunteer in consideration of the expenditures) meant the volunteer was entitled to no federal income tax charitable deduction for the expenditures. Martinez, T.C. Summ. Op. 2017-42

Important Note: Such out-of-pocket expenditures are considered cash contributions to charity and need to be acknowledged accordingly.

For more information on gift substantiation:

Charitable Deductions: Revisiting the Basics” (Give & Take, January 2018)

Taxing Matters: Token Donor Gifts” (Give & Take, October 2015)

Gift Substantiation: The Tail That Wags the Dog” (blog post, September 8, 2015)

Avoiding Charitable Tax Traps” (Give & Take, April 2015)

Or contact your Sharpe Group representative at 901-680-5300,

by Jon Tidd, Esq.