We Will Discuss the Procedures and Practical Considerations of Each Type of Gift Vehicle Here.
SECTION ONE
CHARITABLE BEQUEST
- When a donor desires some assurance about how First United Methodist Church will use a gift or administer a gift fund, the Endowment Committee may prepare a supplemental “Letter of Understanding” or agreement to be signed by the donor and appropriate First United Methodist Church representatives. This document contains the guidelines First United Methodist Church will follow in using a gift or establishing a fund upon acceptance of a donor’s proposed bequest.
- When First United Methodist Church staff learn of a donor’s death, the should be notified, and will want to contact interested parties at First United Methodist Church, such as the Pastor or the Board Chair and other officials, to coordinate an appropriate response in expressing regrets and gratitude to family and friends.
- When First United Methodist Church receives notice of a charitable bequest, the will want to monitor the distribution from the estate or trust to assure proper treatment. This person will also want to identify an appropriate family member or representative to receive First United Methodist Church acknowledgment and thanks. This is far more desirable than simply thanking the legal representative. Typically, the gift receipt is directed to the legal representative for the donor’s estate, or trustee of a donor’s trust.
- Unrestricted bequests will be added to the First United Methodist Church endowment unless otherwise directed by the First United Methodist Church Finance Committee, after appropriate review by the Pastor, and the Endowment Committee and the .
- For all practical purposes, from the standpoint of a charitable organization, wills
and Revocable Living Trusts are the same. The method of specifying property is the same in both: a percentage, specific property or the rest and residue. The methods of marketing these two are also essentially the same. Even the tax implications for the donor’s estate remain the same. Where wills and Revocable Living Trusts differ is in their standing before probate court. The will is probated, the Revocable Living Trust does not go through probate. However, any assets the donor owned in his/her own name alone at the time of death will be included in the inventory of the probate estate.
- When First United Methodist Church staff or representatives have the opportunity, and it is appropriate to do so, they will want to counsel donors to make bequests that will be relatively easy to administrate over long periods of time and changing organizational priorities. It is appropriate to discourage designation that is too precise in nature, asking donors to opt instead for more general designations.
- Acceptable wording for a bequest to First United Methodist Church would include but not necessarily be limited to the following:
- “I bequeath and devise _________ [property description] to First United Methodist Church
for use in pursuing its general and charitable purposes as decided by its Board of Trustees.”
- “I bequeath and devise ____________ [property description] to First United Methodist Church for their Endowment Fund.”
- “I bequeath and devise ___________ [property description] to First United Methodist Church for use in the ____________ [specifies name or type] Program, or for such other purposes as the First United Methodist Church Board of Trustees shall specify.”
- When notice of a gift by will or Revocable Trust is received, the family of the
deceased should receive a letter conveying First United Methodist Church’s gratitude for the gift.
If no family members are living or are able to be located, then the letter should
be sent to the personal representative of the estate, the trust officer or the
appropriate attorney.
- Gifts of real property will undergo the same scrutiny before being accepted as if they were made by a donor during a donor’s lifetime. See Section Three on Gifts of Real Property for the details. It is important that the First United Methodist Church representative inform the estate’s attorney, and the probate process through that attorney, that such scrutiny is necessary prior to acceptance of the gift. If, for example, a CERCLA Phase I test reveals toxic substances, the gift would of necessity be refused.
In most cases, it is of benefit to a charitable organization that gifts of real property be immediately liquidated. See above policy items in the Introduction Section on holding property and liquidation.
- A gift of an undivided partial interest may be deemed unsuitable depending on the circumstances of the gift. For example, the other party(ies) who have the remainder partial interest is a prime consideration. See policy item on restrictions in the Introduction Section.
- It is most often helpful if gifts of securities are liquidated immediately upon receipt and the proceeds of sale are used in a way that is consistent with the donor’s wishes. If a donor has specified that a condition of the gift is that First United Methodist Church shall not sell the securities, such a designation unnecessarily and inappropriately restricts the methods and means by which First United Methodist Church invests part of its capital assets for return. Note the policy item on liquidation of gifts above in the Introduction Section.
- Gifts of tangible and intangible personal property are most often liquidated, since they are most often not useable to the organization. See the policy item on liquidation of gifts above in the Introduction Section.
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SECTION TWO
OUTRIGHT GIFTS OF PERSONAL PROPERTY
- First United Methodist Church is free to sell or liquidate any gift property at any time (unless otherwise agreed in writing). If possible, it is highly desirable that First United Methodist Church’s intention, to either resell the property or to retain and use it to further its charitable activities, should be made clear to the donor at the time the gift is planned.
- It is to the benefit of the organization that title to the gift property should be clear and unencumbered and properly documented with an acceptable Deed of Gift form. See policy item under Gifts of Real Property.
- Title to gift property should be transferred to “ First United Methodist Church ” which is the legal name of the organization.
- The should advise the donor to comply with IRS Form 8283 reporting requirements for non-cash gifts (other than publicly traded securities) in excess of $5,000 in value. An authorized representative of the Endowment Committee should execute the donee acknowledgment section of Form 8283 and return it so that it may be filed with the donor’s federal income tax return.
The authorized representative should note the appraised fair market value reported on the form by the donor, and respond appropriately to any discrepancy or irregularity. Note, however, that signing the form on behalf of First United Methodist Church as the recipient of the gift does not represent concurrence in the appraised value of the donated property.
- A Donor should be encouraged to have all documents reviewed by their own attorney.
- Generally speaking, gifts of personal property are problematic for an organization like First United Methodist Church. Most types of collections would be deemed inappropriate to be used in pursuit of the organization’s charitable purposes. Liquidation of collections, household goods, automobiles and the like poses a problem of logistics, but should be done in order to allow the organization to benefit the most from the gift.
- In situations where First United Methodist Church staff and representatives have the opportunity to counsel with donors about gifts of personal property, the donor should be advised of anticipated problems in use or disposition, so that they can understand how their gift will affect the organization.
- Liability for certain environmental or toxic contamination may be imposed upon any individual or organization in the chain of ownership even if the damage or contamination occurred prior to their ownership. This “innocent liability” may be avoided by showing that reasonable efforts were made to assure the property was free of contamination.
Liability may extend to tangible personal property (e.g. radioactive equipment) or intangible personal property (e.g. partnership interests, contract rights, and split or undivided interests in property). Note: In some states certain percentage royalties, overriding royalties and leasehold interests in mineral or oil and gas properties are deemed to be tangible personal property. It is advisable to check current Michigan law as these regulations may be changed from time to time.
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SECTION THREE
OUTRIGHT GIFTS OF REAL PROPERTY
- The First United Methodist Church Real Estate Checklist (see section E below) should be completed to help determine whether acceptance of the gift is prudent.
- Special consideration may be desirable for non-residential property, such as gifts of farm or ranch land, commercial and industrial property, undeveloped real estate, and all gifts of any interest in mining or oil and gas properties.
A properly licensed or certified professional (e.g. geologist or hydrologist) should perform the environmental audit. He or she will conduct either a preliminary, an intermediate, or an extensive environmental audit as may be required to demonstrate due diligence and care in accepting the property as free from contamination. This should be documented properly for legal purposes. In certain cases a donor may be required to execute an indemnity or “hold harmless” agreement before the gift can be accepted.
- Real estate has become, for the most part, a very impractical gift for a charitable organization like First United Methodist Church. The reason for this is the increased emphasis during the last twenty years on toxic substances. There are many parcels of real estate that contain something that is toxic to one degree or another. The costs of cleaning up toxic materials can be very high, even ruinous to small organizations. Therefore extreme care should be taken with any gift of real estate, no matter how much the donor insists that there is and could be nothing toxic on the property.
- When courts take a look at toxic waste sites to determine who should be responsible for cleaning up the site, they will want to know that the charity has done everything in its power to ensure that the property has no toxic substance on or in it. The charitable organization must exercise “due diligence” in these matters in order not to be chosen as the party responsible for clean-up. The checklists below will assist First United Methodist Church in doing its due diligence in matters involving gifts of real property.
- The practical effect of this is, however, that offers of real estate can become bones of contention between a charity and a donor. Often the donor wants to give the property to the charity in order to reduce the burden of caring for the property and what may be the financial drain of owning it. So the donor is not looking for complicated arrangements. At the same time, the charity needs to protect itself in doing its due diligence on the property. This means that the objectives of the donor and the objectives of the receiving charity may well be at odds.
- Consequently, the handling of gifts of real property needs to be done very delicately and with the utmost of statesmanship. Representatives of First United Methodist Church should at all times assure the donor that they are not being adversarial, and should take the time and trouble to inform the donor well in advance of the steps that will need to be taken, by both donor and charity, before the deed can be transferred.
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SECTION FOUR
BARGAIN SALE
- First United Methodist Church representatives will want to avoid acting as middlemen, or brokers, in the negotiation process.
For example, the Development Director may have confidential information regarding the donor’s financial affairs and motives, and the donor is likely to misunderstand the role of such a representative if this person is involved in the negotiations.
In all cases, however, the negotiations should be fully reviewed by legal counsel to First United Methodist Church. Any unit or representative of First United Methodist Church should keep the Pastor and CEO and the apprised of the progress of negotiations at all times.
- The will want to advise the donor to comply with IRS Form 8283 reporting requirements for non-cash gifts (other than publicly traded securities) in excess of $5,000 in value. An authorized representative of the Endowment Committee should execute the donee acknowledgment section of Form 8283 and return it so that it may be filed with the donor’s federal income tax return.
The authorized representative should note the appraised fair market value reported on the form by the donor and respond appropriately to any discrepancy or irregularity. Note, however, that signing the form on behalf of the First United Methodist Church as recipient of the gift does not represent concurrence in the appraised value of the donated property.
- First United Methodist Church will not delay a subsequent sale of the gift property simply to avoid the IRS reporting requirement on Form 8282 for gift assets sold within two years of the date of the gift.
- Donors should be encouraged to have all documents reviewed by their own attorneys.
- The practical considerations for a bargain sale are generally the same as for real
estate, since it is often a parcel of real estate that is given. If the gift of a bargain sale is on personal property, the practical considerations are the same as for gifts of personal property. In any case, bargain sale gifts mean difficult negotiating for representatives of the charitable organization.
- Consequently, any representative of First United Methodist Church entering into such gift negotiations should inform the donor completely beforehand of what to expect, and should keep the best statesmanlike foot forward at all times. The objectives of the charity in defending itself from unwitting harm by the donor, and the donor’s objectives of giving something of worth to the charity may come into conflict.
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SECTION FIVE
LIFE ESTATE AGREEMENT
- The gift of a “life estate” is created by transferring a deed to First United Methodist Church, which reserves a “life estate,” or the privilege of living in the property after transfer, for the life of the donor or his or her designates. There are many varieties of this gift type.
- A “Life Estate Agreement” with First United Methodist Church may be necessary to clarify the donor’s responsibility for property repairs, taxes, insurance, and other expenses. The donor’s attorney or title company, rather than an First United Methodist Church representative, should prepare the deed. Legal counsel to First United Methodist Church may be enlisted to prepare the Agreement.
- The First United Methodist Church representative should discourage a current gift from a small estate if the property value represents too large a portion of the total estate. Instead, a testamentary gift by will should be encouraged so that the donor is protected against unforeseen emergencies.
- Donors should be encouraged to have all documents reviewed by their own attorneys. (See policy item in Introduction Section.)
- First United Methodist Church staff should counsel donors so that they are aware of their responsibilities for “life estate” property while they are living in the property. This includes, but is not necessarily limited to the following: property repairs and maintenance, taxes, insurance, and related expenses. The property cannot be left to deteriorate. It is sometimes the case that donors will resist this concept because they wish to have the charity carry complete responsibility for the property.
- As with other gifts of real estate, precautions must be taken to avoid toxic
substances on the property being donated. First United Methodist Church staff should follow the policies and procedures found in the section of gifts of real estate. The reader should refer to the Practical Considerations section of the Real Property gift portion of this policy manual.
- As with other gifts of real property, gifts of “life estate” can be cumbersome
and have many details of which donors may not be aware. Consequently, as First United Methodist Church staff counsel with a donor about the most appropriate gift to make, it is necessary to explain in detail all the ramifications of such a gift.
- Prior to acceptance of a gift of a life estate First United Methodist Church personnel will want to make a study to determine the likely value of the gift at the time of the donor’s death, or the death of the successor in the case of a couple. Demographic, economic, historical and governmental factors should be part of this assessment.
- Immediately upon the death of the donor and/or spouse, and upon receipt of the unencumbered title to real property given as a life estate, First United Methodist Church should consider selling the property forthwith and remit the proceeds of the sale to the appropriate endowment fund. (See policy on liquidation of non-cash gifts in Introduction and in Real Estate Section.)
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SECTION SIX
CHARITABLE GIFT ANNUITY
- When a donor proposes to fund a gift annuity with non-liquid assets, the representative of First United Methodist Church will want to follow the review and approval steps indicated in the Introduction Section.
- First United Methodist Church payment rates will be the same as the uniform gift annuity rates promulgated by the American Council on Gift Annuities. This is done to avoid competition between First United Methodist Church and other charitable institutions.
- The State of Michigan does not regulate gift annuities at this time. First United Methodist Church staff will want to be vigilant about changes in the status of gift annuities in this and other states. This is a rapidly changing landscape.
- Donors should be encouraged to have the gift annuity transaction and related documents reviewed by their attorney. Of particular note, special care should be taken so that a gift annuity transaction should is reviewed by the donor’s attorney if any of the donor’s family members have objections, or if the donor’s financial sophistication or judgment is in doubt.
- The reason gift assets for gift annuities will be invested according to First United Methodist Church long-term investment guidelines, is in order to generate sufficient funds to pay part or all of the guaranteed annuity payments, while preserving as much as possible of the original gift.
- If a donor proposes a gift annuity the residue from which is to be restricted in some way, the representative of First United Methodist Church will refer to the policy on the review and approval of gift restrictions in the Introduction Section.
- Generally speaking, the gift annuity is a good gift for many middle-class persons
who want to make a gift, but who need some income from that gift, for retirement planning or other purposes.
- The gift annuity agreement is a simple document, easily drafted, easily administered. Donors should be encouraged to receive semi-annual or annual payments, insofar as this is to the donor’s advantage as well as to that of First United Methodist Church.
- It is wise for gift annuity gift amounts to remain in the long-term investment portfolios
at least until the death of the income beneficiary(ies). That way there will always be money with which to pay the annuity. At the death of the last annuitant, then, the money can be used for operational expenses or placed in the endowment, whichever is thought to be the best decision.
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SECTION SEVEN
POOLED INCOME FUND
1. If and when First United Methodist Church begins to encourage gifts of
Pooled Income contributions, and amount of $10,000 is suggested as a
minimum fair market value for assets transferred to the PIF. There would
also be good reason to establish a $5,000 minimum for additions to
such a fund by the same donor.
2. It is questionable whether First United Methodist Church should
facilitate a PIF gift which generates a charitable deduction equal to less
than 15 percent of the gift value. Participation must be justified as
cost effective on a case-by-case basis.
3. First United Methodist Church representatives should not promote the
PIF as an investment vehicle or compare it to investment alternatives. The
PIF is a gift vehicle which generates income cash flow for life.
4. Gift assets transferred to the PIF should be cash, securities or other
liquid assets. Real estate or tangible personal property is generally not
suitable unless an immediate sale can be arranged. In any case, the reader
will refer to the policy items in the Introduction and in the section on
gifts of Real Property.
5. First United Methodist Church will want to provide the donor with a
copy of the Trust Disclosure Statement prior to execution of the Gift
Transfer Document. Review by donor’s attorney should be encouraged.
The transaction should be reviewed by the donor’s attorney, especially if
any family members have objections, or the donor’s financial
sophistication or judgment is in doubt.
6. It is not appropriate for a donor, or donor-related individuals and
entities, to act as trustees for a charitable Pooled Income Fund.
7. Pooled Income Funds, over the period from 1985 to 1999 were typically
very unproductive. Consequently, they were not very marketable as gift
vehicles. The Gift Annuity has been a much stronger gift, both from the
standpoint of donor and charity alike.
8. From the donor’s perspective, it may be helpful to receive an income
that
varies with market conditions. But typically funds invested for income
are not invested for growth, so the donor’s income remains relatively low
and does not really grow with the market in the way other vehicles do.
9. From the perspective of the charitable organization, the Pooled Income
Fund required a fiduciary to maintain and invest it, and can prove to be
an administrative and financial drain on the organization unless the number
of donors in the fund is substantial.
###Practical and Procedural Matters for Various Types of Gifts is Continued###
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