With the summer vacation season coming up, many can reminisce on past times with family filled with fond vacation memories. Some of those memories may have been generated at family vacation homes that have been enjoyed by several generations of the same family getting together for days of fun.

However, an article in InvestmentNews touched upon an issue that has become common; past memories of vacation home fun is no guarantee of future interest. More parents are discovering that their adult children have no desire to have the family vacation home passed down to them.

A wealth planning expert in the article said, “There’s this aura around a vacation home because it’s where many good memories are made. Many parents are surprised and disappointed to learn that their kids don’t want anything to do with the home.”

What to do with a vacation home can become a source of discord in a family. Tracy Craig, an attorney quoted in the article states, “The vast majority of clients are not 100% certain how the next generation feels about the vacation home. If it’s not dealt with, a vacation home can disrupt sibling relationships and people can end up annoyed and resentful with each other, which is not what parents intended.”

One way to alleviate these issues is to use the property’s value to build a charitable legacy. Many of those who support charitable causes do so with direct cash payments on an after-tax basis. A wiser, tax-efficient means toward future charity may be the value of the vacation home that the family no longer needs.

Donating a Property through a Donor Advised Fund

Donor advised funds (DAFs) are charitable giving vehicles that are established by a sponsoring public charity, which make grants to other charitable organizations based upon recommendations from the donor. By donating appreciated real estate to a donor advised fund, the owner can earn generous tax benefits, support their favorite causes, and free up time for other pursuits.

American Endowment Foundation (AEF) is a public charity that enables donors to create a donor advised fund. AEF administers the fund on behalf of the donor. The donor can then recommend grants to qualified nonprofit organizations on their own timetable. The donor’s financial advisor can remain involved in managing the investment dollars that reside in the DAF account.

How It Works

Any gift of real estate is subject to the review and approval of the AEF Gift Acceptance Committee and requires a minimum appraised value of $1,000,000. AEF strongly prefers that any gift involving real estate is an interest in an entity that directly or indirectly owns the real estate (e.g. stock in a corporation or interests in a partnership, trust, limited liability company or other entity) rather than the property itself. At AEF, after a donor establishes a donor advised fund with AEF, the donor irrevocably transfers title of no more than 90% of the entity to the fund. The donor may be eligible for an immediate federal tax deduction equal to the Fair Market Value (FMV) of the entity donated, up to 30% of the adjusted gross income (AGI). If the FMV of the donation is greater than 30% of AGI, the excess can be carried forward for five years.

This compares very favorably to similar donations made to a private foundation, which are generally deductible at cost basis. After ownership of the entity has been transferred to the fund, AEF will work with the donor and their financial advisor to sell the property. The donor will then be responsible for the dissolution of the entity (if not sold with the real estate) with their legal and tax advisors in accordance with the Secretary of State where the entity is domiciled. Once this process has been completed, the cash proceeds will be available for the donor to donate through their DAF.

At American Endowment Foundation (AEF), we have helped transform millions of dollars in real estate value into charitable legacies. Of particular value to financial advisors, they can maintain oversight of these previously illiquid assets as part of their clients’ financial portfolio.

Although the path to turning real estate into charitable goodwill can seem complex, we have a team of experts ready to walk you through the process. Please contact us or call at 1-888-966-8170. We are happy to be of help.