August 7, 2018

A World of Possibilities to do A World of Good

The Texas A&M Foundation’s Vice President for Real Estate Services, Tim Walton ’90, manages the real property assets of the Foundation. He also leads real estate fundraising: managing and marketing gifts of real estate, evaluating real property offered as a potential gift to the Foundation, and working with development staff to present real estate fundraising proposals. During his 16-year tenure with the Foundation, he has found that real estate gifts are a very flexible and powerful option for many donors. In a conversation, he explains why leaving a legacy for Texas A&M via real estate offers great benefits and answers some of prospective property donors’ most frequently asked questions.

The Freedom to Give Now…or Later

“Most people have no idea they can give real estate,” said Walton, “whether it be residential, commercial or agricultural properties, from homes and vacation residences to ranches, farms, undeveloped land, or oil and gas interests.”

But how and when the donor officially parts with the real estate is based on their goals and objectives.  “There are four possibilities,” Walton elaborates. “If donors want to continue enjoying the property during their lifetimes or the lifetimes of their beneficiaries, they might decide to give the property in their will or create a retained life estate, where the property would be deeded to the Foundation immediately, but the donor would still retain lifetime use of the property. On the other hand, some donors might wish to divest of the property right away. In that case, they could make an outright gift, and the proceeds from the sale of the property would immediately benefit Texas A&M. Another option is to create a charitable remainder unitrust from the sale of the property, where the trust would provide the donor or their family with income during their lifetimes, and the remainder would benefit Texas A&M after their lifetimes.”    

Choose Your Own Adventure

These four options allow donors to choose their own best outcomes. Walton explains, “donors to the Texas A&M Foundation can determine exactly which program or area they want to support. If they want to set up a scholarship for a student in a certain school or college, they can. If they want to ensure a faculty position is funded long into the future, they can. If they want to bolster a student activity that meant so much to their own growth and development, they can do that too. There really are so many ways a donor can do a world of good!” Walton is quick to point out that a donor has many possible ways to benefit their own lives as well as their family’s lives and well-being. “Immediate or delayed charitable tax deductions, avoiding capital gains taxes, eliminating obligations of ownership and even a lifetime income stream are just some of the possible benefits of giving real estate,” he says.

Thinking about donors who have weighed the pros and cons of different ways to give leads Walton to elaborate on some of the prospective donors’ frequently asked real estate questions.

How is my charitable deduction calculated and how do I know what the property will sell for?

"Generally, a donor will receive a charitable deduction equal to the fair market value of contributed real estate based on a qualified appraisal. Most donors are not aware of the generous 6-year window to utilize their charitable income tax deduction. The donor’s appraisal is an important tool in the marketing process as most donors want to know how much their donated property will sell for. The foundation secures the most qualified real estate brokerage team to maximize the value of the gift. Our objective for every real estate gift is to not leave one penny on the table."

Specific to bequests and life estates: What if I change my mind after documenting the gift?

"This question exemplifies the flexibility offered with bequests and retained life estates," elaborates Walton. "Because bequests are revocable at any time during the life of the donor, the donor can amend their will should conditions change. It is also true that if an asset is no longer owned by the donor at the time of probate, the asset simply does not pass to the charity. Many donors look at bequests as a great 'safety net' just in case the unthinkable happens."

As for the retained life estate, Walton points out that this gift method is a home run for the donor who wants to avoid the probate process, continue using the property, receive a significant charitable income tax deduction and keep several options available should the donor decide to vacate or stop using the property during their lifetime. "These options again demonstrate the flexibility of real estate gifts. If the donor decides to stop using the property he or she is entitled to either another charitable income tax deduction for the remainder interest donated (based on a new Qualified Appraisal), lease the property and retain all the income during the donor’s lifetime, or participate in a joint sale of the asset with the charity and receive a percentage of the sale proceeds based on the remainder interest owned by the donor at the time of sale."

Specific to a charitable remainder unitrust, Walton explains, "donors want to know if it is really possible to sell an appreciated asset and by-pass the capital gains tax when sold, receive a charitable income tax deduction, receive an income stream for lifetime or pass the income stream to children for their lifetime and impact Texas A&M with a significant gift." He smiles as he replies, “absolutely, thanks to the charitable remainder unitrust”. As expected, Walton’s answer is then typically followed up by the obvious question; how much is the payout? Again, Walton just smiles and says, “it is up to the donor, but it must be a minimum of 5% per year and the Foundation will pay up to 7% per year”. Walton ends by saying that the power and flexibility of real estate gifts are incredible and Texas A&M Foundation is here to empower donors.

All in the Family

Walton says that the Foundation frequently receives requests from donors who wish to gift their family farm or ranch but would like to keep their property as it is. “We realize that a family property can have a great deal of sentimental meaning.  Sometimes, it can be difficult to think about parting with a family legacy even when you don’t have an heir who wants to operate the farm or ranch, or the property has become a financial or management burden. I like to encourage prospective donors to think about leaving a different kind of legacy though—one that can preserve their family’s values and legacy.” 

For example, Walton often suggests they think about designating the proceeds from the sale of the property to create a named family endowment that would then sustain the family’s values and interests. Whether this endowment is to support students, faculty or research, the family legacy will continue by impacting future generations at Texas A&M.