Tag Archives: estate planning

Payments in Lieu of Taxes: Necessary Evil or Unfair Imposition?

Reposted from The Giving Institute Blog – May 23, 2012

Click HERE to download a PDF of this article. 

Today’s continued economic uncertainty has prompted bold actions by local governments as they struggle to secure necessary income while faced with substantial budget shortfalls, unpredictable tax revenues and critical services in dire need of funding. In this era of municipal belt-tightening, a rapidly growing number of local officials now look at previously untapped sources of revenue: nonprofit institutions.

Since Boston’s Mayor Thomas Menino first broached the issue several years ago, other communities – small, medium, and large – have followed suit and have turned to some of the country’s most significant nonprofits to augment the current tax base.

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This has become an unprecedented source of revenue as well as debate, especially as questions arise around the endowments and land holdings of some of the country’s largest nonprofits, with universities, museums, hospitals and other community resources being cajoled, negotiated with and sometimes even publicly assailed in the media.

This country’s 1.5 million nonprofit organizations represent and cater to a myriad of important causes and missions, and in return, they have traditionally received immunity from real estate taxes and other taxes through their federally-designated 501(c)(3) statuses. However, the notion that charitable institutions are off-limits to the tax collector has recently been cast off.

As a result, municipalities now see an opportunity to extract some much-needed revenue from nonprofit organizations. This phenomenon has been working its way across the U.S. under creatively phrased monikers such as “voluntary contributions” and “payments in lieu of taxes (PILOT).”

We first noticed the momentum towards acceptance of this new model about 15 months ago when we developed a then-controversial op-ed piece for the Giving Institute’s blog about PILOT.  Since then we have witnessed additional municipalities placing public pressures on their largest local nonprofit institutions. Most organizations are obliging, and only a few weeks ago a precedent-setting court decision undoubtedly propelled these controversial PILOT issues into the public arena.

The Mesivta Eitz Chaim of Bobov Inc. summer camp, located on 61 picturesque acres in Pike County, Pennsylvania, is operated by the Bobov Orthodox Jewish community in Brooklyn, New York. Between June and August, the camp provides classes and lectures on Orthodox Judaism as well as some recreational activities, though the camp is primarily designed as an educational institution.

Although the camp’s dining and recreational facilities are open to the public, camp representatives were unaware of neither Pike County residents using the facilities nor Pike County or Pennsylvania residents attending the camp.  As a nonprofit organization, the camp sought an exemption from real estate taxes, but Pike County and the local school district denied the camp’s request for an exemption based on the nature of the camp and its charitable status.

The Pennsylvania Supreme Court upheld two lower court rulings against the camp’s tax exemption. In order to receive an exemption, the Court held that a claimant must meet the definition of a “purely public charity” as measured in a 1985 Pennsylvania case (Hospital Utilization Project v. Commonwealth).

In Pennsylvania, an “institution of purely public charity” advances a charitable purpose, donates or renders gratuitously a substantial portion of its services, benefits a substantial and indefinite class of persons who are legitimate subjects of charity, relieves the government of some of its burden, and operates entirely free from private profit motive.

At issue in the case was whether the camp relieved the government of some burden, since the dining and recreation facilities were open to the public and the camp’s soccer fields, located outside of the camp’s gates, were used on occasion by the public. The Court affirmed that the occasional use of recreational facilities was insufficient to relieve Pike County’s government of some of its burden and made the camp’s property taxable.

This decision has the potential to be very important, especially in this challenging economic environment when many municipalities are cash-strapped. The implications from the point of view of the nonprofit are that local governments may look to charitable organizations as revenue sources. Furthermore, nonprofits that balk at payments in lieu of taxes may face a likely possibility that the municipality could challenge its nonprofit status, and possibly revoke it.

Here’s an overview of where PILOT programs are especially active:

Boston, Massachusetts

Boston has become the clear leader in implementing PILOT programs, collecting almost $17 million annually from a variety of cultural, educational and medical institutions, with annual payments ranging from a few hundred dollars from a VFW Post to millions from hospitals and universities. In 2010, 36 nonprofits provided “voluntary tax” payments to the city.

New guidelines promulgated by Mayor Menino’s PILOT Task Force increased the number of nonprofits asked to contribute and pushed nonprofit payments up by 24%. Boston University and other large landholders have “volunteered” payments for municipal services approximating 25% of what they would pay if they were a for-profit entity.

Chicago, Illinois

Chicago has slashed critical city services amounting to $417 million. Colleges, universities and hospitals are being approached, although organizations of all sizes are affected.

One prominent example is the 20-member nonprofit Austin Green Team. Since 1989, the Austin Green Team has maintained over one dozen gardens and two greenhouses in the Austin neighborhood on Chicago’s west side, providing beauty and a sense of serenity to more than 100,000 residents. Under the Mayor’s 2012 budget, the Austin Green Team’s water service fee waiver is proposed for revocation, threatening the viability and survival of the gardens. The proposed budget plan includes eliminating fee waivers for virtually every nonprofit organization in Chicago.

Worcester, Massachusetts

In 2011, Worcester Polytechnic Institute entered into a 25-year agreement with the city to annually fund $50,000 to maintain and improve a neighboring park. WPI had already been making annual PILOT contributions of $180,000, including a 2.5% increase built in annually over the next 25 years. WPI president Dennis Berkey described the payments as strengthening the quality of the relationship between the college and the city. WPI also received assurances from the city that for the next 25 years, no additional taxes would be levied on the institution. However, a more important aspect of the relationship was the positive publicity lauded on the school for its support of the city.

Syracuse, New York

In 2011, Syracuse University began making $500,000 annual payments on a 5-year, $2.5 million pledge to the city of Syracuse. Responding to the pleas from the financially strapped city, University officials agreed to be the first nonprofit in Syracuse to make a voluntary payment after the City Council began exploring taxing some aspects of the University’s newly expanded properties. According to City Council, even as the University further shifts the burden of municipal services away from taxpayers, “It’s time for the University to kick in a little more to support these services.”

Providence, Rhode Island

Due to unprecedented financial problems, the Mayor of Providence initiated a program designed to pursue tax exempt institutions for a “failure to sacrifice.” The natural target was the city’s largest landowner, Brown University, who since 1764, was “freed and exempted from all taxes.”

Recent negotiations have yielded voluntary payments from Brown in the amount of $31.5 million over 11 years. Brown owns 200 buildings in Providence valued at over $1 billion in total, and if taxed, would pay the city $38 million annually. As Providence Mayor Angel Taveras summed it up, “every organization, including tax-exempt institutions, must share part of the burden of saving our city.”

Even with a slowly advancing economic outlook, the landscape has changed and nonprofits are unlikely to continue to benefit from their open-ended special tax exemption. With this in mind, land-owning nonprofit organizations should consider the following:

  1. Be prepared. Charitable organizations should not assume that their nonprofit status creates blanket immunity from all taxation. Houses of worship, community centers of all types, camps and other agencies owning larger parcels of land may be targeted for voluntary payments.
  1. Budget now for PILOT. Nonprofits should plan on including PILOT payments that might represent “reasonable” contributions to the municipality and tailor their budgets and programming accordingly.
  1. Get out in front of the issue and use it to your advantage. Appearing as a “good citizen” is important to nonprofits, especially those that are large landowners. Tailoring the PILOT to garner positive PR can strengthen an organization’s community image as well as possibly enable special consideration from the municipality later on. Nonprofits of all sizes should expect governments to ask them to step forward and contribute voluntary payments or pay usage fees to cover municipal services, including fire and police protection and other services.

Non-Cash Giving Can Be an Important Donor Option

Reposted from eJewish Philanthropy – May 3, 2012

While the most common way to satisfy charitable commitments is with cash and appreciated securities, an often uncommon means available to donors is to utilize “stuff:” items of value that are often very attractive to collectors and which can become practical ways to satisfy philanthropic obligations.

Donors at all levels, but most notably high net worth contributors, periodically utilize non-cash giving. Art museums have received benefactions of pieces of art for decades and other types of nonprofits have welcomed real estate, especially when property was highly valued and represented an easy way for a donor to avoid costly capital gains taxes while satisfying a pledge.

A recent synagogue client received a valuable sculpture, valued at $300,000, when a member inherited the piece from a deceased relative. The donor did not want the piece and made the gift with two important stipulations: the congregation had to hold the piece for at least three years and that it is displayed prominently (requirements made for tax considerations subject to the related-use and tax exempt purpose rules of the 501(c)3 ).

Another congregation was nearly the recipient of a time-share at a Poconos resort, carrying with it a value of about $10,000. Fortunately formal Gift Acceptance policies prohibited the institution from accepting a gift of this type and the donor ultimately made cash payment for a campaign pledge instead.

Laura Linder, executive director of the Jewish Foundation of Memphis, is talking passionately these days about two gifts the Foundation has received within recent months from older Jewish philanthropists originally unaware of the power of gifting valuable collections.

The Foundation received the first gift in late 2011 when a member of the Jewish community, Susan Adler Thorp, began breaking up the estate of her late parents, Herta and Dr. Justin Hans Adler, and considered ways to deal with a Tiffany glass collection her mother had amassed. Determining that no living relatives wanted the collection, she contacted the Foundation and made arrangements through Mrs. Linder to transfer a significant portion of the collection that took more than 50 years to create.

After cataloging the objects and working in concert with one of the nation’s top auction houses, the Foundation received very significant proceeds earmarked for and added to the Herta and Justin H. Adler Philanthropic Fund, the family’s donor advised fund (DAF). Proceeds from the auction of that collection will be used in part to help fund the purchase of life-saving prescription medications for senior citizens, the Temple Israel Museum, and other charitable organizations designed to help make life better for others.

While the Adlers were avid collectors of art, they also were dedicated philanthropists, often saying that “charity is the gift you give for having a good life,” noted Mrs. Thorp. “My parents shared an eye for beauty and a love for art,” she said. “My mother’s passion was collecting Tiffany glass. Nearly everything in the collection was found as my mother searched for Tiffany glass.” All of the items in the collection were sold in a special Heritage Signature Auction of Lalique and Art Glass in New York City on November 19th. The much- anticipated live auction generated far more than the book value of the collection.

A second non-cash gift came to the Memphis Foundation earlier this year as a result of an anonymous Jewish couple preparing to downsize. The donor had passionately developed an enormous coin collection, including U.S. coins, shekels, and other pieces of varying value. The Foundation has contracted with an auction house to catalogue the coins and it is expected to go to auction in several venues later in 2012. Proceeds could exceed $500,000 and will also be used to create a DAF for an as-yet-to-be-determined set of purposes.

“During the ten years I have been at the Foundation, we have received several real estate gifts,” Laura Linder told us. “But until recently I had never even considered the power of encouraging donors to make non-cash gifts of this type or of this magnitude. This is an eye-opener for all of us at the Foundation.”

Tax implications for donors using collected items are a motivator, for sure, especially if offspring have little or no appreciation for or interest in “the stuff,” a commonly used term voiced by Bob Koo, a Palm Beach-based art and philanthropy consultant to the high net worth philanthropically-focused. “While our work is focused especially on successful individuals and families, there are certainly implications for donors of all levels,” he says.

Koo conducts educational seminars across the U.S. and has written extensively about the approaches that nonprofits might consider to attract part or all of collected possessions. Very often, he says, “things” that people have collected probably have no significant value … other than to the collector. “But in other instances, fine art of all types, books and manuscripts, coins and medals, clocks and watches, entertainment and space memorabilia, furniture, jewelry, vintage motor cars or wines and whiskeys can have large price tags. And when estate planning requires significant taxes, nonprofits can benefit significantly when they openly encourage donors to make gifts of this type … prior to their passing.”

Both Koo and Linder have told us about other circumstances where donors have talked about people who have considered charitable gifts to either satisfy current priorities or pave the way for other charitable opportunities. Both share a common recommendation to nonprofits: market the concepts actively and showcase the values of gifting collectables.

One other important consideration for nonprofits accepting non-cash gifts: carefully review your Gift Acceptance policies and update the written, formal documents so that you minimize jeopardy and are prepared with responses when potential donors inquire about gifting collectibles. Nonprofits should review such policies annually but giving beyond “conventional” methods requires careful strategies and policies.

Are You Tackling Planned Giving Yet?

Reposted from eJewish Philanthropy – March 2, 2012

While every charitable gift is planned, some are “more planned” than others. And in today’s charitable giving arena the importance of testamentary giving is more punctuated than ever, especially as Jewish Baby Boomers are aging … quickly.

Yet, America’s Jewish congregations lag far behind other Jewish nonprofits in reaching out to secure commitments by wills, trusts, estates and other revocable and irrevocable approaches, complementing current gifts. In fact, planned giving is acknowledged to be among the most critically important, but often overlooked, aspects of a synagogue’s overall fundraising strategy. Higher education, arts organizations and hospitals have successfully pursued testamentary gifts for decades. But why not synagogues?

Charitable bequests in the U.S. rose an estimated 18.8% in 2010 to $22.8 billion, according to Giving USA. Although planned giving is becoming more important to many nonprofits, Jewish leadership – and especially congregational leaders – has been reluctant to make it a centerpiece of congregational fundraising.

Philanthropy in both the Jewish and non-Jewish worlds has evolved fundamentally from the “crisis mode” of the post Holocaust generation. With a substantial accumulation of wealth, we would expect that donors have money to give for compelling causes and important organizations. Coupled with increased wealth is increased involvement in philanthropy, as donors strive to find the best fit for their specific areas of interest and demand assurances that their contributions are being well utilized. Perhaps synagogue leadership have been afraid of talking about the eventuality of death and the importance of putting the synagogue on an equal footing in estate planning with an individual’s other philanthropic priorities.

This then begs another question: why haven’t synagogues evolved their fundraising capabilities to position themselves in the new philanthropic dynamic? This is an especially critical question in light of recent economic challenges.

Most congregations rely on annual and High Holiday appeals, the bread-and-butter of synagogue fundraising, along with events and other “nickels and dimes.” Additionally, synagogues generally focus on securing contributions to address day-to-day needs rather than looking at strategic and future needs. Further, planned gifts involve seemingly complex and unfamiliar legalistic terms and are sometimes couched as the private purview of financial advisors, lawyers and wealth consultants and not with clergy and synagogue administrators. It’s no wonder why some would hesitate to initiate discussions about planned giving.

So why must synagogues integrate planned giving into existing development programs? Talking about planned giving need not be fraught with technical jargon, and, in fact, is a wonderful opportunity for dynamic discussions with members, engaging them in personal conversations about their hopes and dreams for the future of the congregation. Incorporating planned giving conversations and efforts into other campaign-focused efforts provides an alternative or a partner to outright gifts. Moreover, planned giving can be geared towards a larger audience, reaching those who may not have the capacity to make a significant outright gift. There are also tax benefits and supplemental funding considerations to various planned giving vehicles.

In a nutshell, planned giving focuses on an individual’s assets, which typically comprises the majority of a person’s net worth and allows individuals to make larger gifts than they could merely from their income. Rather than make a single major gift through various planned giving vehicles, donors can structure a bequest or something more complex that provides both income and tax advantages to the donor as well as heirs. Depending on the gift, a donor may pay no capital gains tax, receive current tax deductions, qualify for sales tax exemption or receive fixed payments.

Our research led us to four practitioners with varying positive perspectives on planned giving. Lisa Farber Miller is the Jewish Life Program Officer with the Rose Community Foundation in Denver, Colorado. Through the Rose initiative, Live On: Build Your Jewish Legacy, 31 Denver/Boulder area Jewish organizations, including nine area congregations, have built endowments through planned giving. Like many Jewish communities, Denver’s Jewish organizations had not approached fundraising from a strategic perspective, relying mainly on membership dues and annual giving. Ms. Miller attributes a willingness to consider alternative fundraising techniques to a dwindling dues pool and recent economic challenges. Through targeted training, incentive grants and a public awareness campaign, Live On has enabled the Denver/Boulder Jewish community to harness about $45 million in endowment bequests since 2005.

When educating Jewish organizations on the creation of planned giving initiatives, Ms. Miller leans towards keeping the message simple, as planned giving terminology and functionality can be confusing. Similarly, she stresses the relative ease of “stroke of the pen” gifts, such a adding a Jewish organization as a life insurance beneficiary, which allows donors to add the synagogue to the policy themselves and does not require legal counsel. The culture of planned giving starts at the top, which is why she advises the creation of a leadership-based Planned Giving Committee. Committee members should receive training in how to establish and build upon relationships with legacy donor prospects as well as make planned gifts themselves.

One of the most successful synagogue-based campaign efforts now in progress is at Temple Oheb Shalom, in suburban Baltimore. With more than $5.0 million in pledges already secured for restricted and unrestricted endowment, about $1.5 million comes in the form of testamentary commitments, according to Mrs. Maxine Lowy, director of development and special projects. “We have incorporated a solid planned giving component into our campaign and I know that we will see many more planned gifts in the future,” she told us. “Our Pathways Campaign has a planned giving subcommittee and they will continue even after Pathways concludes.” She noted, too, that discussing planned giving with congregants is opening up many discussions that serve to strengthen all aspects of the congregation.

Rabbi Michael G. Holzman, of Northern Virginia Hebrew Congregation in Reston, Virginia, recognizes the importance of planned giving, yet believes that synagogues have been fundamentally slow to adapt to the changes in the philanthropic environment and to adopt new practices. With burgeoning membership growth a benefit of the baby boom, synagogues did not have to try too hard to grow and remain fiscally sound. However, he believes that the last ten years have been a wake-up call to congregations.

Declining membership in many communities, coupled with economic challenges, has both drastically altered the vision that many synagogues have for their next generation. When it comes to fundraising – fortunately or unfortunately, “everything is on the table.” Challenges exist for many suburban synagogues, of which NVHC, in the Washington, D.C. suburbs, fits the mold. A majority of the almost 500 household member congregation comprises families with school-age children – not exactly the cohort to embrace planned giving. However, congregants who are a little older have considered planned giving options as part of their synagogue support. Rabbi Holzman describes planned giving as being exactly consistent with Jewish traditions of giving and supporting the community. He counsels that synagogues should create a culture of planned giving by investing staff time and leadership effort, congregational energy, and the required financial resources. Additionally, they should insert a planned giving line item in their budget and through the above investment, expect to receive testamentary support annually.

The acknowledged leaders in capturing the planned giving market are the so-called eds and meds – institutions of higher learning and medicine – which traditionally have had development departments engaged with alumni, former patients and their families. According to Brian Rissinger, Executive Director of Reform Congregation Keneseth Israel in Elkins Park, Pennsylvania, it is rare to find a synagogue that has kept pace with higher education and hospitals in developing and promoting planned giving. Although he sees more synagogues with development professionals, there too often is pressure for immediate results rather than an acceptance of the delayed gratification of planned giving.

As a result of a recent endowment campaign there is renewed emphasis on planned giving and a lay-led committee is coordinating an on-going approach that develops into a long-term fundraising vehicle, he hopes. At Keneseth Israel, Mr. Rissinger is rarely notified beforehand that congregants have named the congregation in their estate. More often than not, he receives bequests that he was unaware were being left to the synagogue. Several major bequests were a result of “seeds” that were planted 15 years ago. The bequests are treated like “found money,” of which the unrestricted bequests are used for capital needs or placed in a rainy day fund. Regardless, the KI policy is to recognize each and every bequest, whether or not specific instructions were included. Donor recognition in the form of plaques and special newsletter articles are used to inform and educate the membership about planned giving.

Planning legacy gifts requires a dedicated effort of a congregation’s professional and volunteer leadership. A commitment to both strategically accommodate and demystify planned giving is a must.

  • Establishing a Planned Giving Committee of members who not only are passionate about the synagogue and its future but also possess some technical familiarity (e.g. lawyers, accountants, financial planners) is essential to ensuring that donors can efficiently plan legacy gifts safeguarding their charitable intent.
  • Clergy as well as past and current leadership should be included in the planned giving process.
  • As always with fundraising, leadership should lead by example so Planned Giving Committee members should be the first to designate the congregation as a beneficiary. The other responsibilities of the Planned Giving Committee should include creating gift policies and procedures, marketing, asking for gifts and donor recognition.

Planned giving should be approached as a long-term venture, where relationships with congregants are stewarded, through consistent promotion and regular and appropriate promotion, until they are ready to make such a special gift. Discussing the synagogue’s mission and future plans is a good way to initiate contact with potential donors and learn more about their specific motivations and preferences.

Communication and education are essential. Virtually all communication should have an integrated planning giving message, including newsletters and brochures along with a “Ways to Give” link on the synagogue’s website. Specialized seminars given by legal and financial professionals, possibly drawn from the congregation, are an informal way to promote planned giving. Recognizing individuals who have made planned gifts is vital to maintaining relationships and building new ones.

Planned giving is the most flexible way for congregants to proactively acknowledge the importance of their synagogue in their lives. Likewise, planned giving affords synagogue leadership with a tremendous opportunity to forge and strengthen bonds with congregants when discussing how to best use the multitude of testamentary options, not to mention supplementing dues, enhancing capital projects and supporting vibrant programming. The time is ripe for synagogues to expand their funding capacities and catch up with other nonprofits in strategically planning a sustainable financial future.