The Most Important Step to Any Non-Cash Gift

Gifts of things like real estate, stock, and life insurance may seem very different from one another, but the gift acceptance process for all non-cash gifts is the same.

Know the Basics of the Asset Type
Gather the Right Information
Evaluate for Opportunity and Risk
Accept or Decline Respectfully
Manage or Liquidate

These same five steps apply to all non-cash gifts, but one of them stands out as by far the most important – Evaluate for Opportunity and Risk. It can mean the difference between a great gift and a headache.

If you’ve gathered all the relevant information about the asset, you will be able to weigh the positives and negatives. Virtually every gift comes with some opportunity and some risk. Knowing how to identify them is key.

The opportunity associated with a non-cash gift often lies in its financial value. Obviously, The gift could be worth a great deal of money and, once accepted, you could sell it and use the proceeds to further your mission in big ways. Opportunity could also come in the form of something your charity needs, such as land for a new facility, art for your walls, equipment you will use, etc.

Risks come in a few basic flavors – financial, legal, time/energy, and public relations. Let’s take a look at some of the risks you may run into with a few asset types.

Real Estate

Will you have to spend a great deal to fix it up before it can be sold?

What are the carrying costs, such as property taxes, utilities, maintenance, repairs, insurance, etc.?

Is the property marketable – meaning does anyone want to buy it?

How long might it take to sell? The longer you own it, the more carrying costs you’ll have to expend.

Is there potential environmental contamination? Clean-up can cost a fortune.

Is the title “clean” – meaning are there any encumbrances that would prevent you from accepting or selling the property? The most common title problem I’ve seen is deceased people still listed on the title.

Are there any tenants? If so, you’ll want to perform a detailed review of the lease(s) and request a rental history to determine whether they usually pay rent on time.

Real estate is probably the most complex asset you can accept, because no two properties are the same. This complexity greatly increases the time and energy you’ll have to devote to managing and liquidating it.

For additional guidance on gifts of real estate, see my article, Five Things to Know Before You Accept a Gift of Real Estate.

Private Stock

Will you be required to contribute cash to the business as a result of a capital call or other financial liability of the business?

When you sell the stock, will you be subject to taxes? Some private stock does subject charities to taxes.

How long will it take to sell? Private stock can take a while to liquidate and the value can fluctuate during that time. An increase in price would be great, but a significant decrease could make the gift less attractive.

For more information on gifts of private stock, see my article, Gifts of Private Stock – Don’t Be Caught Off-Guard.

Life Insurance Policy

Gifts of life insurance by beneficiary designation come with virtually zero risk. You just have to make sure to steward the gift well.

Gifts of the actual policy come with a unique set of requirements and potential challenges. First, who will pay the premiums? It is a best practice for charities to require donors to pay the premiums on policies they donate. Ongoing premiums can be a significant drain on a charity’s cash flow.

What if the donor stops paying the premiums? You do have choices to help preserve some of the value of the gift. The worst thing to do is to do nothing. For a breakdown of what you can do when a donor stops paying premiums on a policy owned by charity – see my earlier article, Guide to Accepting Gifts of Life Insurance.

Lastly, gifts of life insurance policies require significant administration. Every time a donor makes a premium payment, you’ll need to send them a gift receipt. You should also monitor the policy regularly to make sure the premiums are being paid and the investments inside the contract are performing as expected.

In Summary

This article doesn’t illustrate every potential risk for every asset you may encounter. I’m hoping to have given you a flavor for the kinds of opportunities and risks you can encounter.

For a more detailed guide, I recommend my award-winning book, Turning Wealth Into What Matters: A Practical Step-by-Step Guide to Non-Cash Gifts. It will walk you through all five steps to each asset type and outline a more complete list of potential risks to look for.

Even if an asset poses more risk or requires more time than you can spare, don’t decline the gift right away. There are a number of nonprofits out there that are willing to accept non-cash gifts on your behalf, liquidate them and pass the sales proceeds onto you (minus a small portion to cover their costs). I’ve listed some of them in my article, Why Can’t We Be Friends?

According to research by Russell James, PhD, charities that accept non-cash gifts increase their fundraising by an average of 50% within 5 years.

If you’re ready build your knowledge and skills around non-cash gifts, I invite you to explore the many ways I can assist you.

You can choose DIY resources, such as my award-winning book, Turning Wealth Into What Matters, and my Online School for Non-Cash Gifts. Both are designed specifically for non-profit professionals of all skill levels.