Planned Giving

Looking a Gift-Horse in the Mouth

Creating a structure to govern real and in-kind asset acceptance

 

For the sixth straight year, charitable giving in the U.S. increased in 2015, setting a new annual record of $373 billion.1 And while every nonprofit would love nothing more than for all of that $373 billion to be in cash, the simple truth is that gifts of non-cash assets such as stock, land, homes, businesses, vehicles and artwork make up an increasingly large portion of the charitable pie. According to Fidelity Charitable’s 2016 Giving Report, nearly 20% of affluent donors have contributed appreciated non-cash assets at some point in their giving history.

1 in 5 affluent donors have contributed appreciated non-cash assets at some point in their giving history2

Certainly, you can opt for the path of least resistance by simply refusing all non-cash gifts. But you run the real risk of embarrassing or alienating potential donors and excluding supporters of your organization’s mission who have significant holdings of valuable real assets. Conversely, simply throwing open the door to all donations can quickly turn into an unmitigated disaster.

Caveat recipiēns (let the recipient beware)

Non-cash gifts can bring both unanticipated costs and risks to your organization. It’s not hard to imagine gratefully accepting a beautiful lakeside home only to find out that it’s situated adjacent to an old toxic dumping site when you go to sell the property. Even situations far less extreme still pose potential challenges.

Unlike cash (or even securities), real assets may require costly upkeep or maintenance that must be carefully factored into any decision regarding whether or not to accept them as a gift. Your organization may have neither the in-house resources nor the expertise necessary to liquidate or preserve the ongoing value of certain assets.

What constitutes a real asset?

The term “real assets” encompasses any non-financial appreciated tangible assets such as:

  • Real estate (homes, apartment buildings, commercial property, land, etc.)
  • Art
  • Vehicles
  • Business interests
  • Book collections
  • Jewelry
  • Oil, gas or mineral rights
  • Timber holdings

Additionally, both the asset gifted as well as the source of the gift may run counter to your organization’s charitable mission. While a $1,000,000 gift would be a welcome windfall for a community healthcare advocacy nonprofit, what happens if that gift came in the form of 10,000 shares of a cigarette manufacturer stock? What do you do if the individual offering a generous gift to your foundation has ties to an unpopular organization or possesses a controversial political opinion?

Even gifts that don’t raise any obvious red flags (including some cash gifts) may prove problematic when they are accompanied by excessive restrictions. Some donors may wish to stipulate that in-kind gifts not be liquidated or mandate precisely how cash gifts can or cannot be spent. In theory it’s an understandable desire, but your nonprofit needs to ensure that the demands of the requested restriction won’t in any way impede the mission or needs of the organization.

Holding onto gifted real assets of significant value (e.g., a $1 million piece of real estate) may also necessitate a reallocation of portfolio assets to maintain target asset class allocations. In addition, these types of assets often require extensive investment expertise to identify and monitor appropriate performance benchmarks.

Despite all these potential challenges, turning down a large gift or bequest, especially when the organization would benefit from the infusion of funds, may be one of the most difficult decisions that any nonprofit must face. To aid in the decision making process, you need a clearly-defined and well-articulated construct that eliminates any subjective desire and guides gift acceptance decisions.

Creating a Gift Acceptance Policy for your nonprofit

Typically, a gift acceptance policy is a straightforward 2-3 page document that delineates your organization’s policies and procedures as related to the acceptance of charitable gifts (including in-kind gifts and gifts of real assets). Ideally, the policy should outline requirements and restrictions for accepting gifts while affording a certain degree of flexibility for special circumstances. It should be clearly conveyed both externally to prospective donors as well as internally to all staff members.

Creation of a gift acceptance policy should be a deeply collaborative effort involving key planned giving and program administration professionals, finance and investment committee members, legal counsel and Board members. Along with a reiteration of your nonprofit’s mission and the underlying intent of the gift acceptance policy to help further that mission, the document will typically contain three essential sections:

  • Restrictions on gifts – This is  a high-level summary statement articulating the prohibition of any gifts that may run counter to the organization’s mission, jeopardize its 501(c)(3) status, prove too difficult to dispose of or administer or potentially tarnish the nonprofit’s public image.
  • Gifts generally accepted without review – For most organizations, gifts that are accepted without review typically include cash and publicly-traded securities. Depending on the size and internal resources of your nonprofit, you may choose to include other gift types.
  • Gifts requiring review prior to acceptance – This is generally the most detailed section of your policy which includes a list of all other types of gifts that MAY be accepted if they meet certain criteria. This is where (among other assets) you might choose to explain your policies regarding closely-held securities, real estate, life insurance, oil/gas/mineral interests, automobiles, boats, works of art, charitable lead trusts, charitable remainder trusts and charitable gift annuities. Make sure to include key components of your acceptance criteria for each asset type. For example, under real estate you may mandate that the property:
    • Be deemed “marketable,” with no restrictions, easements, covenants or other limitations;
    • Have no excessive carrying costs (e.g., mortgages, notes, taxes or insurance); and
    • Passes an environmental audit.

The document should clearly advise donors to seek legal/tax counsel before making any gift and similarly inform them that under certain circumstances your organization may also engage counsel to advise on a proposed gift. It should identify which party (donor or recipient nonprofit) assumes the cost and responsibility for any asset appraisals or valuations for gifts.

Your nonprofit’s gift acceptance policy affords you an ideal means to mitigate potential donor gift restrictions by formalizing your policies and procedures surrounding the disposition of gifts (e.g., all gifts of securities will be immediately liquidated upon receipt). It also provides you with an opportunity to articulate guidelines for tiered recognition levels and/or minimum gifting requirements for establishing a named fund.

A partner to guide you

At SunTrust, we work with a wide range of nonprofit Boards to help explore gift acceptance best practices and identify policies that closely align with the organization’s unique needs and mission. Additionally, we also advise our clients on the impact those policies may have on the organization’s investment portfolio.

Because each individual nonprofit has a unique mission and goals, the provisions of their gift acceptance policies also need to be distinct. Once you establish your policy, periodically review it (at least annually) to ensure it remains aligned with your mission, risk profile, and development strategy.  For more information about creating or revising your organization’s gift acceptance policy, contact your SunTrust relationship manager or investment advisor or call us at 866.223.1499.

About SunTrust Foundations and Endowments Specialty Practice

SunTrust has nearly a century of experience working with not-for-profit organizations. Fiduciary stewardship is the heart of our culture. We are not merely a provider for our clients; we are an invested partner sharing responsibility for prudent management of not-for-profit assets. Our client commitment, not-for-profit experience and fiduciary culture are significant advantages for our clients and set us apart from our competition. The Foundations and Endowments Specialty Practice works exclusively with not-for- profit organizations. Our institutional teams include professionals with extensive not-for-profit expertise. These professionals are actively engaged in the not-for profit community and are able to share best practices that are meaningful to their clients. Team members offer guidance and advice tailored to the various subsets of the not-for-profit community, including trade associations and membership organizations. Our Practice delivers comprehensive investment advisory, administration, planned giving, custody, trust and fiduciary services to over 700 not-for-profit organizations. We administer $30.9 billion in assets for trade associations, educational institutions, foundations, endowments and other not-for-profit clients.3

For more information about the SunTrust Foundations and Endowments Specialty Practice, please visit us at www.suntrust.com/foundationsandendowments or www.suntrust.com/nonprofitinsights.

1 Giving USA Report, 2016

2 Fidelity Charitable 2016 Giving Report

3 As of September 30, 2016

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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