How to Give Away a Pile of Dirt! Optimizing Donations with Non-Cash Assets.

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This guest post is authored by Bryan K. Clontz, PhD, CFP®, CLU®, ChFC®, CAP®, AEP®, RICP®, CBP, Founder & President, Charitable Solutions LLC.

Assets other than cash are prime candidates for donations. The average donor has more wealth in illiquid, non-cash assets than in cash and publicly traded stocks. [1] This can include property such as real estate and business interests, along with items like cryptocurrency, collectibles, mineral rights, artwork, or intellectual property. Unlocking the value in these types of assets can be extremely favorable for both donors and charities.

Take the following examples of the opportunity for donating non-cash assets:

  • In nearly every survey, cash or cash equivalents represent the smallest portion of the overall balance sheet for high net worth individuals/major donors. The most current research suggests cash represents 7% of total high net worth assets in 2015. [1]

  • The aggregate domestic stock market value as of 2017 was approximately $32.1 trillion. [1]

  • The aggregate value of privately owned U.S. land (not government owned), as of the first quarter of 2018, is approximately $53.2 trillion. [1]

This suggests that, for many charitable individuals, the best assets for donations may be those other than cash and marketable securities.

These assets are often prime candidates for donation because they may be highly appreciated, meaning that if the asset was sold, there would be significant capital gain. This presents an appealing proposition for donors and charities alike: donors can avoid paying capital gains taxes on the donated asset, and charities receive property which has increased in value. Better still, donors can receive a significant tax deduction.

This strategy is particularly appealing under the 2017 tax law. With the new, higher standard deduction, “bunching” donations has become a more popular tactic, which means donating one or more high-value assets. That allows donors to deduct the value of the property and potentially to still manage charitable giving through use of a donor advised fund.

This bunching strategy can work especially well with an appreciated non-cash asset. This tactic also means the donor is still holding the cash that they might otherwise have donated to meet their charitable goals. That added liquidity means flexibility that would be lost (relatively speaking) with a cash donation.

One unique example was a client’s gift of dirt.

A homebuilder in northern Virginia learned that the National Mall was looking for fill dirt. He was looking for a solution to get rid of the dirt he had accumulated. So, he ended up donating 38 truckloads and received a charitable income tax deduction based on an appraisal per cubic yard.

There are a few special considerations for donations of non-cash assets (including any kind of illiquid asset, not just real estate and business interests):

  • Donations valued at over $5,000 require a “qualified appraisal,” as defined by the IRS.

  • Donations of complex assets can require advance planning and may be a longer overall process, depending on the requirements and procedures of the charity accepting the donation.

  • Deductions for non-cash donations are limited to 30% of adjusted gross income in the year of donation. Cash donations are limited to 60% of adjusted gross income.

Further, appreciated non-cash assets may be suitable for planned gifts. Planned gifts involve a more complex structure than simply giving the asset outright to charity, sometimes including some benefit for the donor.

At their simplest, a planned gift can be a bequest in the donor’s will. More complex structures can include an income stream or some retained use of the donated asset. Many structures will still include a tax benefit, although it may not be as advantageous as an outright donation.

A short list and description of selected planned giving vehicles:

Charitable gift annuity. Donors exchange a donated asset for an annuity contract issued by the charity. The remaining value of the annuity goes to charity at the end of the donor’s life. The annuity pays a fixed amount for life, and the donor receives a deduction based on the present value of the projected amount remaining for charity when the annuity ends.

Charitable remainder trust. Donors contribute an appreciated asset to a trust which provides income to the donor for life or a term of years, with a named charitable beneficiary getting the remainder. Payments can be a fixed dollar amount or a fixed percentage of trust assets. The donor receives an immediate tax deduction for the present value of the remainder. This option can be somewhat similar to the charitable gift annuity; however, it may be both more flexible and more expensive to set up.

Charitable lead trust. This charitable trust inverts the remainder trust – the charity is a beneficiary of the trust for a term of years, after which time the donated trust assets return to the donor or donor’s family. Payments to the charity can be a fixed dollar amount or a fixed percentage of trust assets. The advantage of a properly designed charitable lead trust is that it can allow for favorable estate tax treatment. Availability and amount of income tax deduction depends on the structure of the trust.

Retained life estate. An option for real estate, specifically donors’ primary residences. The donor lives in their home for life, but gives the remaining, post-life interest to charity. The donor is responsible for maintaining their home, but receives an up-front deduction based on the present value of the expected remainder values.

The main takeaway for the charitably inclined should be that assets other than cash offer both opportunity and flexibility. As such, donors should consider their illiquid assets in their tax and charitable planning.

For more information about these advanced gifting strategies, contact an advisor at Fi3 to discuss your unique charitable goals.

[1] Clontz, B. (2017). Charitable Gifts of Non-cash Assets. CreateSpace Independent Publishing Platform.

About the author:
Bryan is the founder and President of Charitable Solutions, LLC, specializing in non-cash asset receipt and liquidation, gift annuity reinsurance brokerage, gift annuity risk management audits, emergency assistance funds and life insurance appraisals/audits. Click
here to learn more about Bryan.

While this article addresses generally held investment philosophies of Fi3 Financial Advisors, LLC, it does not represent a specific investment recommendation for any individual client or prospective client. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Information has been obtained from a variety of sources believed to be reliable but not independently verified. Past performance does not indicate future performance.