A gift of cash, land or other property to a conservation organization that is included in a will can achieve a donor's estate planning objectives as well as benefit a worthy charity.

Summary

Prospective donors sometimes hesitate to make a substantial donation of cash, land or other property because of their concern that they may deplete assets that may be needed later in their lives. A gift by will avoids this concern.

A gift of cash or other personal property by will, sometimes called a bequest, can be made in a specific dollar amount or calculated as a formula based upon other requirements of the estate. The gift can be to a specific conservation organization or the person(s) administering the estate (the "personal representatives") can be given the power in the will to identify the beneficiary of the gift. The gift can be unrestricted or can be given for a specific purpose.

A gift of land or other real estate interests by will, sometimes called a devise, can be made of the entire ownership interest, a percentage interest in common with others, or a remainder interest after the lifetime of some individual or individuals identified in the will. The will may authorize or direct the personal representative to donate a conservation easement on a property to a conservation organization before it is conveyed out of the estate in accordance with the terms of the will. Unrestricted gifts of cash or items of personal property that can be converted into cash may come as delightful, and much appreciated, surprises to the beneficiary. That's not always true with gifts of real estate. The prospective beneficiary should be consulted before including a devise of real property in a will -- particularly if it is the donor's intent to restrict its use or transferability.

Track Record

Donations by will have been widely used for centuries as a way of benefitting charities by distributing to them some or all of the assets remaining upon the death of the donor.

Disputes sometimes arise if the expectations of friends or relatives of the decedent are not met or if there has not been a clear understanding as to whether any restrictions apply to the future use and transferability of the donated property.

Typical End Users

Individuals who want to support the mission of a particular conservation organization.
Individuals who wish to make a strong commitment to conservation but who are concerned that a large gift in the present may unintentionally deplete assets that they may need later in life.
Individuals who want assurance that their land will continue to be conserved after they no longer have stewardship of it.
Land trusts, local governments and other conservation organizations who can accept the donation of land or other property by will.

Conservation Impact

Donation by will enables people, who are concerned that a large gift in the present may unintentionally deplete assets that they may need later in life, to make a strong commitment to conservation.
Donation of a conservation easement or land by will may assure donors that their land will continue to be conserved after they no longer have stewardship of it.
Donation by will may help property owners achieve goals of both supporting conservation and avoiding or minimizing inheritance and estate taxes.

What You'll Need

A will that reflects the donor's intention to make a gift and the restrictions, if any, imposed upon the future use of the gift.
If the gift is of land or a conservation easement on land, a meeting of the minds between donor and conservation organization as to the conditions (if any) applicable to the receipt of the gift.

Obstacles and Challenges

A donor's failure to communicate with the receiving organization on donation of easement, land or restricted cash gift can mean the organization is not fully prepared or even equipped to comply with the wishes of the donor.
A donor's failure to communicate with family members or trusted advisors about the gift may raise suspicions of undue influence by the organization receiving the gift.
Family members may raise issues of legal competency if the donor was of advanced age when including the gift to the conservation organization in the will.

Contents of Main Description

DONATIONS BY WILL IN GENERAL
   Donations of Gifts to Support an Organization’s Broad Purposes
   Donations of Gifts that have Conditions or Restrictions
DONATIONS OF CASH OR OTHER PERSONAL PROPERTY
   Donor Restricted Fund
   Board Restricted Fund
   Specification vs. Flexibility
DONATIONS OF REAL ESTATE
   Due Diligence
   Financial Analysis
   Donations for Preserve or other Programmatic Use
DONATIONS OF CONSERVATION EASEMENTS
   Election to Donate
   Instructions to Donate
ACQUISITION OPPORTUNITIES
FEDERAL TAX BENEFITS
   Lifetime Donation
   Post-mortem Donation
   Estate Tax Exclusion
   State Inheritance Tax Benefit

DONATIONS BY WILL IN GENERAL

Donations of Gifts to Support an Organization’s Broad Purposes

Donations of cash, shares of stock or other items of personal property that can be converted into cash are always welcomed by conservation organizations. Unless the donor specifies otherwise, the donation, and any earnings generated by investment of the donation, can be used by the conservation organization in support of its general operating expenses or other specific purposes designated by its board.

Donations of Gifts that have Conditions or Restrictions

Prospective donors by will should have a candid discussion with likely recipients of the gift to confirm the acceptability of the gift and their capacity to maintain and use the gift consistent with the intentions of the donor. This discussion may be on a confidential basis for the protection of both the donors and the prospective recipients. Absent a contractually binding obligation to make a gift, a will can always be changed up to the moment of death. If there is an expectation that the recipient will invest time and resources, or forego other opportunities, in reliance upon the expected gift by will, then it would be appropriate to enter into a mutually binding donation agreement to assure that those expectations will be met.

DONATIONS OF CASH OR OTHER PERSONAL PROPERTY

Donor Restricted Fund

The will should clearly indicate whether the donation is to be used only for a particular purpose (a donor restricted fund), whether a particular purpose is recommended but not obligatory, or whether the gift is totally unrestricted. If the gift is restricted by the donor, the will should make clear whether it is the donation only, or earnings on it as well, that are restricted. If a conservation organization accepts a donor-restricted fund, it accepts the legally binding obligation to use the fund entrusted to it only for the purposes intended. A diversion of use not sanctioned by appropriate legal authority is a serious breach of trust.

Board Restricted Fund

When the donor desires but does not require the donation to be used for a particular purpose, and the conservation organization also desires the same result, the use of the fund (and, if so desired, future earnings) may be restricted to that purpose by resolution of the governing board. While such a restriction is a strong statement of policy by that governing board, a fund restricted only by resolution of the board may be diverted to other purposes should a future board resolve to do so.

Specification vs. Flexibility

Individuals may provide for a cash donation of a specific amount in their will; however, that may or may not be the right choice for an individual depending upon a number of factors that an attorney experienced in estate planning will be able to discuss with the donor. Among other alternatives to be considered is donating a portion, calculated by a formula, of the residual value of the estate or a class of assets within the estate.

Individuals may make a will with decades of life expectancy remaining. Although they may support the mission of conservation of natural resources, they may not be ready to specify a particular conservation organization so soon. The donor's circumstances may change -- relocation to another part of the country, for example. Donor's desire to support a particular organization may change as well over time. In that case, the will could authorize the personal representative to identify one or more conservation organizations that will benefit from the gift. It is up to the donor to keep the personal representative advised of his current intentions.

DONATIONS OF REAL ESTATE

Due Diligence

Conservation organizations need to approach donations of real estate interests, whether by will or otherwise, with the same caution as other land acquisitions. Before accepting the gift, the conservation organization should request pertinent information from the prospective donor or donor's personal representatives: any title, survey, leasing, appraisal or other information they may have as well as any environmental or other inspections pertaining to compliance with applicable laws. If that information is not sufficient, or cannot be relied upon, to make an informed decision as to whether to accept the property, then the conservation organization should do its own due diligence before acceptance.

Similarly, donors may want to perform their own due diligence before committing to the donation to check that prospective recipients have the commitment and the capacity, both financial and otherwise, to maintain and use the donated property as intended.

Financial Analysis

Ownership of land is not like ownership of a stock or other investment assets. Marketable securities come with the risk that their value could plummet so as to be worthless but that's the worst that can happen. The owner isn't called upon to invest any more money in the asset. That's not so with real estate. Taxes, insurance and other carrying charges need to be paid in the interim ownership period even if the plan is to put the property on the market immediately. If the conservation organization cannot afford to take that cash flow risk, then alternatives need to be considered; for example: (1) to have the estate sell the property and distribute the net proceeds to the conservation organization; (2) to arrange for a loan, secured by the property, for the estimated carrying cost over the estimated resale period; or (3) to stipulate a cash contribution in addition to the donation of the property to cover that cash flow shortfall.

Donations for Preserve or other Programmatic Use

A donation of land restricted to use as a nature preserve or other specified use by the donor must be approached with a higher level of scrutiny both on the part of donor and prospective recipient. The first issue is whether ownership and operation of the property for the specified use is consistent with and in furtherance of the mission and strategic plan of the conservation organization. The second issue is the financial feasibility of owning and operating the property for the specified use for an indefinite period of time. Donation of a property that can generate, on its own, sufficient revenue to support both its costs of ownership and its programmatic use is rare indeed.

The donor should recognize that the governing board of the conservation organization needs to evaluate, before acceptance of a land donation, whether the organization has or will have the capacity to manage the land without draining resources from organization activities of potentially higher priority. If not, the donor may need to provide for a cash contribution in the will to provide an endowment fund that, when invested at a reasonable rate of return, will provide sufficient funds to subsidize the ownership and operation of the property over an indefinite period of time. And even if management of the donor’s land would be one of the organization’s highest priorities, the donor may still have a strong interest in providing an endowment fund to ensure that the organization’s other activities do not suffer as a result of the donor’s land gift. The expectations of donor and prospective recipient as to the prudent investment and appropriate use of endowment funds should be documented by donation agreement.

It is, to say the least, awkward for a conservation organization to turn down a gift from a well-meaning supporter who did not discuss the matter beforehand. On the other hand, a governing board that accepts an impractical gift of land so as to maintain good public relations with the family or community has created a huge problem for a future board. No charitable organization benefits from petitioning a court to terminate, or otherwise change, the terms of the charitable restrictions under which a property has been entrusted to it. That is almost always the last resort after the assets of the conservation organization have been drained subsidizing an inadequately endowed preserve property.

DONATIONS OF CONSERVATION EASEMENTS

Election to Donate

As long as the personal representatives are authorized by the will or applicable law to make donations of the assets of the estate, they may elect to donate a conservation easement on that property before the filing of the estate tax return. There are federal and, possibly, state tax benefits for electing to do so that are discussed below.

Instructions to Donate

Property owners should work out the terms of the conservation easement in advance and incorporate it into their wills if they specifically intend that a conservation easement be imposed on their property before it is transferred as per the will or by a sale conducted by the estate. Many good stewards of conservation-worthy properties do not want, or need, the oversight of a conservation organization while they remain owners of the property. They do, however, want to provide for long-term stewardship when they are no longer able to do so. A conservation easement, that is mutually agreed to by owners and the identified easement holder and is incorporated into the will, assures that the desires and needs of both the donor and recipient will be met. If there is a substantial life expectancy remaining, it is advisable to authorize the personal representatives to make such changes as are reasonably necessary or desirable to adjust the document to then-current conditions and practices. The stewardship donation to be made as a condition of acceptance of the conservation easement should also be worked out in advance and included in the will subject to adjustment to then-current currency values.

ACQUISITION OPPORTUNITIES

Owners of high conservation value land may want to provide in their estate plan, if an outright donation is not feasible, an option to purchase, perhaps on a bargain basis, or right of first purchase in favor of a conservation organization. This allows the identified organization the opportunity to acquire the property at or, in the case of a bargain-sale, below the value appraised for estate tax purposes. At little or no cost to the owners, an acquisition opportunity provided by will could be a strong incentive to the identified conservation organization to raise the funding necessary for the acquisition over the remaining life expectancies of the owners.

FEDERAL TAX BENEFITS

Lifetime Donation

A conservation easement granted by a decedent before death will reduce the value of the property for both federal estate tax and state inheritance tax purposes. Not only will the property subject to the conservation easement be valued as restricted for estate tax purposes but the donor will also have the opportunity to deduct the appraised value of a charitable donation of a conservation easement qualifying under Code §170(h) during the donor's lifetime.

Post-mortem Donation

If the deceased landowner failed to grant a conservation easement while alive, the personal representatives can still take advantage of a tax benefit by donating a conservation easement before the filing of the estate tax return. If the conservation easement otherwise qualifies as a charitable contribution under Code §170(h), the appraised value of the conservation easement can be claimed as a charitable deduction for estate tax purposes under the authority of Code §2055(f).

Estate Tax Exclusion

If property included in an estate is restricted by a conservation easement that qualifies as a charitable contribution under Code §170(h), up to 40% of the value of the eased property may be excluded from the value of the estate for purposes of estate tax. This exclusion, subject to certain qualifying factors set forth in Code §2031(c), applies whether the conservation easement was granted during the deceased owner's lifetime or after death. The exact percent reduction depends on the extent to which the conservation easement reduces the value of the property. Maximum available exclusion from estate tax is $500,000. The personal representatives administering the estate must weigh the benefit of the partial exclusion under Code §2031(c) against the detriment that the excluded property will not get the advantage of a stepped up basis for tax purposes. In other words, when the property is eventually sold, the then-owner will pay tax based upon the gain realized over the deceased owner's investment in the property -- not fair value as of the date of death.

State Inheritance Tax Benefit

A 2006 amendment of the Pennsylvania inheritance tax statute provides, in Section 9 of Act 67, a 50% reduction in valuation for inheritance tax purposes of land subject to an agricultural conservation easement as defined in the Act.

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