Q & A of the Legacy Property Fund

 

 

Please walk me through how it works.

You would donate your property to Keystone Conservation Trust, receiving an immediate tax deduction entitled for six years, and continue to live in your home for as long as you want. Then, upon your departure, Keystone Conservation Trust would sell your home, preserved from development if you so wish. Once the property is sold, Keystone Conservation Trust would place the proceeds from the sale into the Legacy Property Fund. You would direct Keystone Conservation Trust to distribute the desired amount from the Legacy Property Fund to your preferred charity(ies) (see How it works).

The higher the charitable benefit (i.e., the less you retain for yourself), the higher your income tax deduction. Keystone Conservation Trust encourages directing as much as possible from the Legacy Property Fund to critical conservation projects in urgent need. Such contributions are pooled with those of like-minded philanthropists in the Legacy Property Fund and then re-invested into strategically important conservation projects. Conservation Projects.

 

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Tell me more, I'd like to know the details of the process.

1) You and Keystone Conservation Trust (KCT) would discuss and ultimately agree upon a Legacy Property Plan detailing your objectives and expectations for the property and Keystone Conservation Trust. Once the Plan is established, you and KCT would discuss and agree upon a Donation Agreement committing you to donating the property and Keystone to performing certain functions, including the sale of the property and the distribution of the sales proceeds to charities specified in the agreement.
2) KCT would then complete a standard home inspection, title report and any related assessment of the property. You, the donor, would engage a qualified appraiser in determining the fair market value of your property donation so you can later receive your income tax deduction. Income tax Deduction
3) Once everything is acceptable to you, you would donate the agreed upon interest in your property to Keystone Conservation Trust, a qualified IRS-designated non-profit �public charity�. You would receive an immediate tax deduction entitled to you for six years.
4) If you choose to continue living on your property, you would donate title to your property to KCT and either enter into a Residence Agreement with KCT or reserve a life estate. How to stay in your house. Upon your departure, KCT would sell your home, using your realtor if desired.
5) Once the property is sold, KCT would place the proceeds from the sale into the Legacy Property Fund. KCT would distribute the net proceeds from the Legacy Property Fund to the designated charities according to your Donation Agreement. KCT would receive no less than a 2% contribution of the sales price at the time of sale. To the extent the donor wishes that proceeds are to remain in the Legacy Property Fund for future distribution to designated conservation projects, KCT would invest and manage the pooled funds. These monies from the Legacy Property Fund would support the protection of the most critical and urgent conservation capital projects. Legacy Property Fund
To conserve your property, too�If you want to preserve your property forever from development, KCT would assess your property prior to re-sale, design appropriate conservation restrictions and place a binding conservation agreement (a "conservation easement") with a qualified conservation organization all prior to re-sale. Conserve My Property.

 

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How does KCT "save" me time and money?

KCT provides several financial and logistical savings:

1) Maximum income and estate tax benefits for the donation of an asset to an IRS tax exempt public charity:
a. Avoidance of capital gains tax on sale of property
b. Income tax deduction for appraised value of donated property interest, less any retained value (e.g., mortgage or retained life estate)
c. Reduction of value in estate, leading to reduced estate taxes
2) Reduced transaction costs - typically no real estate transfer taxes on the donation, lower legal expenses and reduced real estate commission fees
3) No responsibility, nor hassle of selling the property
4) Eliminates dealing with any residual household goods after one moves out
5) Minimal cost and time to conserve the property
6) One-stop shop to deal with all the logistics, costs and responsibilities of selling and/or conserving a home and your decision benefits your preferred charities

 

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How do the numbers work?

Primarily, fours facts or numbers determine how this tool might work for you:

1) Who owns the property (number of individuals);
2) The "gain" or appreciated value on your house (the difference between (a) what you bought it for, any improvements you made while you owned it and what it will cost to sell it (your "basis"), AND (b) what it sells for (actual sales price);
3) Your federal marginal income tax rate; and
4) What amount you are considering as a charitable gift
Typically, this tool can help you increase your gift by 15-30% at no additional cost to you. To explore some examples

 

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Do I have to donate all of the value in my property?

No. You can donate as much or as little as you would like. In general, KCT does not work on property donations unless a landowner is donating at least 10-15% of the value of the property. Whatever amount you would like to retain in value would be designated in a non-recourse mortgage which you would hold in your name until the property is sold to a new owner. The mortgage would bear an interest rate, payable to you by KCT according to a pre-determined schedule or forgiven. At the re-sale closing, KCT would pay you the amount owed on the mortgage. Your income tax deduction would be reduced by the amount of the mortgage payment.

Note that the mortgage to the donor would be non-recourse so that in the event the property did not sell for the presumed value, then KCT would be responsible for the payment of the non-recourse mortgage to the extent that all sales transaction costs were covered first from the sales price. KCT would then repay the mortgage to the donor, and finally KCT would distribute the net proceeds to the charity(ies). The income tax deduction of the donation is not based on the sales price but on the prior appraised valuation.

 

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Can I use part of the proceeds to buy another house?

Yes. Two basic scenarios exist. Variations exist which we can also explore.

1) You are willing and able to wait until your house re-sells before purchasing your next house - At the time of donation of your property, you retain a non-recourse mortgage on your donated property (hence reducing your tax deduction). When KCT sells the property, you receive a payment in the amount of the non-recourse mortgage (as long as the buyer is willing to pay at least that amount including transaction costs). You then use whatever amount you need from the proceeds of the mortgage to purchase your new house.
2) You need the money now to purchase your next house - Prior to donating your property, you secure a home equity loan and use the proceeds to purchase your new home. All liability and payments required by the home equity loan would be yours until such time as your home is re-sold. (You can also retain a non-recourse mortgage over and above the home equity loan, payable to you when the property is sold.)

 

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Could you use my realtor?

Yes. We would gladly consider using any qualified realtor you might suggest. We advise that before we use any realtor, KCT attempt to sell the property directly. Such a sale would increase the financial return to the designated charities by the amount of the commission, the savings from which KCT would pass on to the charity(ies). In the event that you want to conserve your property, we would advise that we use realtors who are familiar with the sale of properties protected with conservation easements.

 

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Is KCT a real estate broker or agent?

No. KCT owns the donated property and receives no real estate commission for its services.

 

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What's "in it" for KCT?

KCT receives a contribution of no less than 2% of the sales price once it sells the property. KCT distributes 98% of the charitable proceeds either to the non-profits designated by the donor or to qualified conservation projects through the Legacy Property Fund.

 

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How might I "protect my property from development"?

Many properties provide valuable open space benefits to the community. Your property may be one. Keystone Conservation Trust (KCT) would discuss with you what your expectations might be to conserve your property, assess the current features of your property, and then determine with you what might be appropriate for conserving your property. Assuming you wanted to proceed, KCT would then design restrictions to preserve your property in the form of a publicly recorded, legally binding conservation agreement (called a "conservation easement"). These restrictions would be placed on the property after you move out and before KCT re-sells the property to a new buyer. KCT would place the conservation agreement with a qualified organization which would monitor the restrictions forever. The new buyer and all future owners would be bound by the agreement. The conservation organization would receive a modest payment from the sale of the property as an endowment to monitor the agreement forever (approximately ,000).

 

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How do I actually receive the income tax deduction?

You must complete an IRS Form 8283 (on-line at www.irs.gov , search 8283). At least thirty days before you want to submit your taxes, you would complete, sign and send to KCT an IRS Form 8283 along with the completed property appraisal. KCT would review, sign and return back to you the IRS Form 8283 within two weeks of receiving the form from you. Then you would submit the Form 8283 to IRS along with your completed tax filing.

 

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How does the Legacy Property Fund distribute funds to "critical conservation projects"?

KCT constantly reviews the capital needs of conservation projects and features prominent projects on its website. The projects and organizations are screened through a formal application process which scores and ranks each accordingly. Once the pooled monies from accumulated real estate sales reach the amount of capital need for one of the highly ranked projects, then the Legacy Property Fund grants the necessary funds to the conservation organization for the project. KCT's objective is to see these funds invested strategically into critical projects as quickly as possible.

 

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Could KCT deal with all my excess household goods?

Yes. After you and your family have determined what you want to keep, we would value the remaining items as a tax deductible gift. Once you have moved out, KCT would sell (or donate) the remaining items. KCT would distribute the proceeds according to the agreed upon distribution in the Donation Agreement.

 

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Does KCT accept any form of real estate?

Yes. While KCT specializes in residential property, it can accept other interests in real estate as a direct tax deductible donation from an individual or for another non-profit organization. The procedures and agreements are different and would require further discussion.

 

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How does this impact my taxes, income, estate and property taxes?

Income Tax

Individuals - The following rules apply if the donated property is owned in your own name, with your spouse or other persons:

If you have held the property for more than one year, IRS classifies it as a long term capital gain property. In such case, you can deduct the full fair market value of the donated property. IRS limits your charitable contribution deduction to thirty percent (30%) of your adjusted gross income in any one year. Any excess contribution value may be carried forward for five subsequent years. Fair market value is best determined by a qualified independent appraiser whom you would engage.

If you have held the property for less than one year, IRS classifies it as a short term capital gain property. In such case, your deduction is limited to your cost basis (your original purchase price instead of the current fair market value) of the donated property. However, you may deduct up to fifty percent (50%) of your adjusted gross income. Any excess contributions may also be carried forward for five subsequent years. You may also elect to use this methodology for long term capital gains property and deduct the cost basis of the donated property at 50% of your adjusted gross income. We would suggest discussing the appropriate method and calculation with your financial advisor.

Corporations - If you have a controlling interest in the corporation and the property has been held for more than one year, the corporation can deduct up to ten percent (10%) of the net profit of the corporation. Any excess contribution amounts can be carried forward up to five subsequent years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of contribution. If the corporation has elected "Subchapter S" status, then the contribution is to be reported on the individual shareholders K1 and may be deducted on the individual's income tax return.

Partnerships, S-Corporations and Limited Liability Companies - An S-Corporation may not claim a deduction for the property donated. Rather, the contribution passes through to the individual shareholders on a pro-rated based based upon the shareholder's percentage ownership in the S-Corporation. The shareholder can claim the pro-rated deduction on the individual's tax return. The same limits and carry forward rules apply. Partnerships and limited liability company contribution rules follow those of an S-Corporation with one exception: the partners or members can claim a deduction even if they have no basis in the partnership or limited liability company.

Estate Tax - As of the date of the donation, the asset would no longer be part of your estate and hence would no longer be subject to any estate tax. This is particularly significant for those individuals whose property value causes their overall portfolio of assets to exceed the ceiling for federal estate tax exclusion. Amounts which exceed this ceiling are subject to the federal estate tax. (For example, estates of value in excess of million between 2007-2008 will be taxed at a rate of 45%. The estate tax law is subject to change and should be confirmed with your advisor.)

Property Tax - As long as you reside on the property, your property tax would not change. While you live on the property, you would continue to be responsible for the property taxes. This would be specified in the Residence Agreement between you and KCT. Once the property is re-sold, then the responsibility becomes that of the new owner.

 

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Can I continue to stay in my house once I've donated it?

Yes. After donating your property to KCT, you may continue to live on your property as long as you would like. You have two basic choices (1) donate your property, receive the full tax deduction and rent it back for as long as you'd like (usually the more financially attractive option); or (2) reserve a life estate on the property for the rest of your life and receive a reduced tax deduction.

(1) Donate your property and rent it back. Once you donate your property and receive an income tax deduction, you would continue to live in and pay for the costs of living there as you do now (taxes, utilities and any other operating costs). The difference is that you would now pay a "net rental cost" the amount the IRS requires that you pay for the benefit of continuing to use the property after you have received the full tax deduction for your donation. KCT would enter into a Residence Agreement with you specifying the uses, terms, conditions and costs for both parties. The "net rental cost" to you would be the value of the use of the donated property less your assumed ongoing operating expenses for as long as you want to use the property. The net return of the full tax deduction for the donation less the net rental costs usually has a higher return than reserving a life estate (below). You could also designate what charity(ies) you would like KCT to distribute the net rental fee (less any KCT property costs), thereby increasing your philanthropic benefit.

(2) Reserve a life estate. When you donate title of your property to KCT, you can reserve a life estate allowing you to live on the property for as long as you want and you would not be required to "rent back" your property. However, your tax deduction would be reduced according to your age, reflecting the expected time for you to use the property. (For example, in 2006, if you were 70 years old, then IRS would reduce your income tax deduction for the donation by approximately 50%.)

 

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Does KCT work with wealth advisors, attorneys, accountants and other professionals?

Yes, KCT works with wealth advisors to explore different options which might benefit the donor client. This includes calculating the financial return using our financial model and sitting down with the advisor and client to review alternatives. We take as much time as the advisor and client need in order for the client to make the right decision. We also conduct customized seminars and workshops to educate advisors on the tools and techniques which can be used with gifts of land.

 

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Does KCT work with other non-profits?

Yes, KCT is a one-stop shop for non-profit organizations to secure gifts in real estate. KCT assumes all liability, costs, logistical coordination, and responsibilities of receiving and selling real estate. KCT specializes in donor residenceshomes for philanthropy. If individuals are thinking of moving and considering a gift, then KCT can help the donor and non-profit maximize the charitable return to the donor and the organization. Typically, this can increase the gift 15-30% and at no additional cost. And rather than the non-profit organization allocating precious time, resources and opportunity costs to the process, KCT can do it all for the organization using its customized marketing material, expertise and focus. And the financial returns from the sale of just one property can be substantial.

KCT will work with any non-profit organization which is willing to dedicate its time to developing this tool. The program is essentially a major donor/planned giving program targeting real estate. KCT charges no fee for its time, only those direct costs related to customizing material for the non-profit and travel to the donor property. The transaction costs are born by either the property donation itself or the donor.

KCT accepts the property from the donor, assumes all liability, performs the sales transaction and distributes the prescribed proceeds back to the designated non-profit organization. Once KCT has sold the property, it receives a contribution of no less than 2% of the selling price. 98% of the proceeds designated by the donor are distributed to charity.

 

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Does KCT work with community foundations?

Yes. KCT is an outsource solution for community foundations to secure real estate assets to increase their donor advised funds.. KCT can either (1) assume ownership of the property and all liability, costs, logistical coordination, and responsibilities of receiving and selling real estate, or (2) advise the community foundation whether it should assume ownership of the property and navigate the transaction and distribution of the real estate assets for the community foundation.. While KCT can work on any form of real estate, it specializes in donor residenceshomes for philanthropy. If individuals are thinking of moving and considering a gift, then KCT can help the donor maximize the charitable his/her return and hence the donor-advised fund. Typically, this can increase the gift 15-30% and at no additional cost. And rather than the community foundation allocating precious time, resources and opportunity costs to the process, KCT can do it for the foundation using its customized marketing material, expertise and focus. And the increase to the donor advised fund from the sale of just one property can be substantial.

KCT will work with any community foundation which is willing to dedicate its time to developing this tool. The program is essentially a major donor/planned giving program targeting real estate. KCT charges no fee for its time, only those direct costs related to customizing material for the non-profit and travel to the donor property. The transaction costs are born by either the property donation itself or the donor.

If KCT accepts ownership of the property from the donor for the community foundation, KCT would assume all liability, perform the sales transaction and distribute the proceeds designated by the donor back to the community foundation for the designated donor-advised fund. Once KCT has sold the property, it receives a contribution of no less than 2% of the selling price. 98% of the proceeds designated by the donor would be retained in the donor-advised fund or distributed to charity(ies) of the donors choice.

 

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How does KCT make it easier for other charities to accept real estate donations?

KCT allows other charities to outsource the expertise needed as well as the potential risks and all responsibilities inherent in accepting real estate donations. This includes accepting and administering the donation as a non-profit, marketing the property, and distributing the proceeds back to the organization according to the donor's wishes.

For more information about the services offered by Keystone Conservation Trust, contact:

Phil Wallis

610-688-3151