Purchase versus Donation
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About This Guidance
Acquisitions of real estate, whether purchase or donation, contain common elements; however, there are a few key differences.
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Acquisitions of real estate, whether purchase or donation, contain common elements; however, there are a few key differences. By and large, purchases of land or easements will occur by contract (either a purchase and sale agreement or an option). Conversely, most donations of land will not. The parties may enter into a gift agreement that has some similar elements to a purchase agreement, such as an inspection period or the right to conduct a survey or environmental assessment. The agreement might also include restrictions that are to be set forth in the deed of conveyance (for example, conservation restrictions or use restrictions that relate to the organization’s purpose and mission, or terms governing the use of any money that might be made on the resale of the land). As with purchase agreements, an attorney should always be consulted to draft gift agreements to ensure that the rules and regulations about gifts are not violated.
Purchases of land may or may not involve a friendly seller. Alternatively, donations usually come from caring landowners who are committed to the protection of their land. In the case of an outright donation, a land trust will most likely have an ongoing relationship with the donor and, perhaps, the family, and the land trust should nurture this relationship. The donor may want to name the proposed preserve or dedicate a trail. The donor’s wishes should be well documented, as should any promises made by the land trust. For conservation easements, the land trust will have an ongoing monitoring responsibility, so a good relationship with the landowner is critical to uphold the terms of the easement.
Often in the case of a donation, a land trust may assume more of the acquisition costs than in the case of a purchase. For example, a land trust might offer to pay for title insurance for a landowner who is land rich but cash poor. In some areas of the country, it is customary for the donee (or buyer) to pay for title insurance.
A major consideration for a donation versus a purchase is the charitable deduction for the donor. In the case of a donation, the land trust should be careful to inform, not advise, the landowner of potential tax benefits. In addition, the timing of the appraisal will be key to the timing of the donation. Many landowners want to donate before the end of the year for tax purposes, and land trusts should be prepared to act quickly, but not irresponsibly, to accommodate donors arriving at the eleventh hour. If a land trust does not believe it can adequately complete its due diligence steps to close a conservation transaction late in a year, it should be prepared to decline or delay the project. In order to avoid having these issues arise late in the year, some land trusts establish a policy that sets a date after which they will not accept new projects for the year. Keep in mind that complicated projects or unanticipated problems may require a project to carry over into the following year.
Bargain sales — where the property is sold to the land trust at a price below fair market value — have elements of both a purchase and a donation. The donor will need a qualified appraisal to substantiate the charitable gift, and the land trust will need an appraisal to justify its purchase price. In a bargain sale, many sellers and donors benefit from the fact that some of their capital gain attributable to the sale portion can be offset by the contribution.
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Real Estate Fundamentals
Land trusts are in the real estate business. Regardless of their altruistic goals, conservation purposes or mission statements, the commodity of a land trust is land or property interests. This document presents the basics of important real estate concepts.
The Basics of Acquisitions, Part I
Conservation attorney Steve Swartz and conservation director Dan Roix, Columbia Land Trust (accredited), will cover basic real estate concepts, legal elements of real estate transactions and the acquisition process from property identification through title searches and related due diligence to closing.
The Basics of Acquisitions, Part II
Land conservation projects are, at their core, sophisticated real estate transactions, which often involve intense and lengthy exchanges between landowner/donors and land trust staff. Specifically intended for non-attorneys, this two-part webinar is ideal for new staff or those wishing a refresher.