Fall Real Estate 2003

Publication Date: Wednesday, October 8, 2003

A gift that keeps on giving
Donating real estate can have tax benefits

by Anna Galan

You've heard of generous people who donate time, money or stocks to charity. But donating their house? According to the Peninsula Community Foundation, based in Redwood City, giving charitable gifts of real estate is the newest trend in philanthropy.

"There is no rulebook for charitable giving that says you can only give cash or publicly traded stock," said foundation president Sterling Speirn in a press release. "In fact, in a challenging economic climate, there are many reasons to consider gifts of real estate."

In May, the PCF launched the Charitable Real Estate Fund, with the goal of making the process easier for local residents who wish to donate.

In most cases, gifts to the CREF are sold as soon as possible and the proceeds are then deposited into a separate account at PCF chosen by the donor, such as a donor-advised fund or an endowment fund. Because the foundation is a tax-exempt public charity, appreciated property can be sold without capital-gains taxes and all gifts are 100 percent tax deductible.

David Hopkins, a local pilot, inherited a house last August from family friend Edward Muschner and has, per Muschner's wishes, donated the proceeds from the sale of the house to charity. Muschner lived at his home on Sycamore Drive in Palo Alto for about 50 years before he passed away.

Hopkins described Muschner as "a very generous man," whose goal, after he died, was to donate funds to the ovarian cancer society after his wife, Dorothy, died of ovarian cancer.

Hopkins, who was the trustee of the estate, chose to work with PCF after his attorney recommended them for their ability to handle donations to multiple organizations. Hopkins also noted that the PCF is familiar with organizations and helps donors choose organizations that don't just sound great, but put donations to good use.

"They were just so cooperative, that's the reason we went in that direction," Hopkins said of the foundation.

It was also the wish of Muschner to help Avenidas Senior Center in Palo Alto, where he had several meals each week.

"He was just so generous with his time, he really seemed to live through other people," Hopkins said of Muschner.

Speirn, who has been at PCF since 1990, said that while there is no such thing as a bad donation, "it is almost always smarter to donate appreciated assets like real estate or stock than cash.

"When you contribute appreciated assets, you are converting capital gains into charitable dollars. If you put a duplex worth $800,000 into our Charitable Real Estate Fund, the foundation, as a tax-exempt public charity, can sell it without paying capital gains taxes," he said.

"Real estate on the Peninsula and in Silicon Valley has appreciated significantly in recent years, even as the stock market has gone through a period of decline. Right now, it makes a lot of sense for people with charitable goals to think about real estate as a gift asset," Speirn said.

According to PCF's director of outreach, Terrence Mulligan, the CREF was launched because the foundation started to notice many of the families they were working with had highly appreciated real-estate assets. He said that despite fluctuations in the stock market, there were still people who were philanthropic and wished to contribute to charity.

"Unfortunately, most nonprofit organizations are not equipped to look at complicated gifts like real estate," Speirn said. "It's really a question of size and scale -- larger nonprofit institutions like Stanford and PCF have the staff and experience to evaluate things like real estate, intellectual property, partnership interests and so forth."

Speirn advises his clients to work closely with legal and tax advisors, since there can be challenges related to tax codes. Some requirements include an appraisal of the property, and, real estate is deductible at fair market value, not at cost.
"In this community, the difference between cost and fair market value can be several million dollars," Speirn said.

"The process on our end typically takes from two to four weeks. We like to look first hand at the property and run a preliminary environmental report, among other things. Basically, we do our homework to make sure the potential gift is a good fit for the foundation. After we accept a gift, we then list the property for sale. Closing a sale can take a few weeks or several months," Speirn said.

Hopkins said after putting Muschner's home on the market last October, it took a few months to sell the home, and it closed sometime in mid-January. The house, which sold for around $550,000, netted a little over $500,000 to the foundation.

"He was such a neat guy, such a generous man," Hopkins said of Muschner. "It was his wish that all the proceeds from his home go to charity."

" It is almost always smarter to donate appreciated assets like real estate or stock than cash. ...When you contribute appreciated assets, you are converting capital gains into charitable dollars." -- Sterling Speirn, Peninsula Community Foundation president