With the still down market, proposed Planned Gifts funded with real estate keep coming up more and more. And, if you are familiar with these situations, the idea of using gift annuities sounds all too enticing. FLIP CRUTs are really the "real estate" ready vehicles but what if there is a mortgage on the property? what if the donor demands an annuity and not a unitrust income?
I am going to put out the collective wisdom of many who have tried and learned their lessons: forget about gift annuities for real estate (at least for the start of the conversation). If I had my druthers, I wouldn't allow them like NY law used to.
Why am I so negative? Because they are disasters waiting to happen.
What if you have buyer ready and waiting? What if the buyer walks?
What if the property isn't sold during the year of the gift? NY and other states require you to put cash into the require reserves. What if the property doesn't sell for a really long time - you might not be employed by the time it gets sold.
What if the property sells for a lot less than everyone anticipated? Does your donor still get income based on "appraised" donation value?
These are just the start of complications. I actually love trying to figure out how these will work but no charity in their right mind should offer them in most cases.
Just my thoughts after working on a few of these potential gifts this week. Comments? Any successful real estate funded CGAs out there?
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1 comment:
I agree with Jonathan's observations. We've received several inquiries about such arrangements in recent weeks. I believe this is more of a reflection of the depressed real estate market than any true charitable intent.
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