FundSvcs Community

------------------------------
Christina Atkins
Director of Records
Wake Forest University
atkinscr@wfu.edu
------------------------------

We have received our first ever promissory note which entails a lady who executed a contract with our now deceased donor to pay rent and live on his property. We have the signed and executed promissory note in hand. Our Planned Giving Officer wanted our Business Office to have the bank buy out the note so that we recognize the full value as a cash gift and the lady would then pay the bank like a mortgage. The lady did not want to do that and our Business Office backed down. Then the debate became how the gift would be processed and monies received. We were going to recognize the full value as a deferred gift and then write off the full balance and checks would come into the Business Office, however an endowment is involved. Therefore, we would always be out of balance with the Business Office on the fund, and we are not comfortable that the Business Office will ensure the monthly payments always come in (only $231 monthly for the next 10 years!). Therefore, we are now back to booking it as a pledge and the payments coming through our office. PGO is still insisting that it can be fully booked and just let the Business Office deal with the payments and back end. Thoughts?? As often happens, I am in the middle.

------------------------------
Rita S. Williams
Director of Advancement Services
High Point University, High Point NC
rwillia0@highpoint.edu
------------------------------

Original Message:
Sent: 06-04-2020 10:15 AM
From: John Taylor
Subject: Donation via Company Sale to Employees

A promissory note is essentially a pledge.  While I would need to review the entire contract, my initial thought is to treat this as a pledge and the realized income as pledge payments.  Ultimately, though, how you handle the transaction(s) must follow the direction of your CFO.

John

John H. Taylor

Principal

John H. Taylor Consulting, LLC

2604 Sevier St.

Durham, NC   27705

johntaylorconsulting@gmail.com

919.816.5903 (cell/text)

Serving the Advancement Community Since 1987

Original Message:
Sent: 10/2/2020 9:31:00 AM
From: Rita S Williams
Subject: RE: Donation via Company Sale to Employees

We have received our first ever promissory note which entails a lady who executed a contract with our now deceased donor to pay rent and live on his property. We have the signed and executed promissory note in hand. Our Planned Giving Officer wanted our Business Office to have the bank buy out the note so that we recognize the full value as a cash gift and the lady would then pay the bank like a mortgage. The lady did not want to do that and our Business Office backed down. Then the debate became how the gift would be processed and monies received. We were going to recognize the full value as a deferred gift and then write off the full balance and checks would come into the Business Office, however an endowment is involved. Therefore, we would always be out of balance with the Business Office on the fund, and we are not comfortable that the Business Office will ensure the monthly payments always come in (only $231 monthly for the next 10 years!). Therefore, we are now back to booking it as a pledge and the payments coming through our office. PGO is still insisting that it can be fully booked and just let the Business Office deal with the payments and back end. Thoughts?? As often happens, I am in the middle.

------------------------------
Rita S. Williams
Director of Advancement Services
High Point University, High Point NC
rwillia0@highpoint.edu
------------------------------

Thank you for your responses John and Isaac. The donor who gifted us the promissory note is deceased so the promissory note was willed to us. The "renters" are now paying us monthly. After discussing with the Business Office, we are booking the gift value of the note as a pledge, and the interest as a deferred pledge. There is an amortization schedule and we will split the gift each month (for 10! years) because the interest portion cannot be fully realized currently. The full amount, principal plus interest will go into an endowed fund per donor's wishes. Now our questions are, 1) should the pledges go on the deceased donor's record, 2) if so, should the renters receive soft credit, and 3) are we required to acknowledge the renters (with or without tax verbiage?) after we receive payments? As a side note, we would acknowledge with an annual letter, not monthly. We are just not sure if we are required to or not.

Yes John, there's a ton going on here for sure! Thank you for your input!!

------------------------------
Rita S. Williams
Director of Advancement Services
High Point University, High Point NC
rwillia0@highpoint.edu
------------------------------

Original Message:
Sent: 06-04-2020 12:00 PM
From: Isaac Shalev
Subject: Donation via Company Sale to Employees

In general, if a donor writes a promissory note to you, that's a pledge.

If a donor donates a promissory note that they hold as a creditor (ie debt someone else owes to them), this is a gift of an asset. You will need to get it appraised, and that's the value you can record as a gift. The actual revenue you receive is earned income, just like rent from a property or dividends from a stock. The 'gift' is the right to receive future revenue streams, and that's worth something today.

In practice, this means that your gift value is going to be different from the loan principal+interest payments value, but that's on your business office to reconcile.

Valuing a promissory note from a privately-held business is hard, and valuing a subordinate promissory note is harder. You will need to get an appraisal that basically evaluates the loan as a risky annuity.

These kinds of gifts are very valuable to taxpayers b/c the asset is hard to sell, but if you donate it you get the FMV, ignoring the cost-basis.

Thank you,
Isaac Shalev
CRM Expert
Sage70, Inc.
(917) 859-0151
isaac@sage70.com

Schedule a 30-minute consultation now:

https://calendly.com/sage70/30min

Original Message:
Sent: 10/21/2020 3:19:00 PM
From: Rita S Williams
Subject: RE: Donation via Company Sale to Employees

Thank you for your responses John and Isaac. The donor who gifted us the promissory note is deceased so the promissory note was willed to us. The "renters" are now paying us monthly. After discussing with the Business Office, we are booking the gift value of the note as a pledge, and the interest as a deferred pledge. There is an amortization schedule and we will split the gift each month (for 10! years) because the interest portion cannot be fully realized currently. The full amount, principal plus interest will go into an endowed fund per donor's wishes. Now our questions are, 1) should the pledges go on the deceased donor's record, 2) if so, should the renters receive soft credit, and 3) are we required to acknowledge the renters (with or without tax verbiage?) after we receive payments? As a side note, we would acknowledge with an annual letter, not monthly. We are just not sure if we are required to or not.

Yes John, there's a ton going on here for sure! Thank you for your input!!

------------------------------
Rita S. Williams
Director of Advancement Services
High Point University, High Point NC
rwillia0@highpoint.edu
------------------------------

Again John, thank you so much for your thoughts and suggestions. I really appreciate your time. This may be that easy if there were not an endowment fund involved. It's our role to ensure those monies get into the endowment fund per the donor's wishes. It's our role to ensure we are in balance and in synch with the Business Office reporting for the endowment funds, as we are responsible for sending endowment reports to the deceased donor's family and validate that the book value of the fund is accurate. We cannot ensure the fund balance is accurate if we are not recording the transactions and have nothing to validate against. A deferred pledge is (financially) unrelated or disconnected from the endowment fund. Make sense? I understand what you are suggesting, and if the monies were going to an unrestricted fund it would make sense to do what you suggested. As much as I don't want to process monthly transactions for that many years, I do not see an alternative option.

------------------------------
Rita S. Williams
Director of Advancement Services
High Point University, High Point NC
rwillia0@highpoint.edu
------------------------------

Original Message:
Sent: 10-21-2020 02:25 PM
From: John Taylor
Subject: Donation via Company Sale to Employees

Your Business Office is likely to show the full value of the note as an asset.  Personally, I would never record a pledge for this - nor the MANDATORY payments as gifts.  Per the IRS a gift is only a gift if it is voluntarily given.

I would work with the Business Office and determine the asset value they have assigned to the note.  I would record that as a deferred gift and count the full amount of that in your totals.  The Advancement Office should not be involved in handling mandatory rent payments.

John

John H. Taylor

Principal

John H. Taylor Consulting, LLC

2604 Sevier St.

Durham, NC   27705

johntaylorconsulting@gmail.com

919.816.5903 (cell/text)

Serving the Advancement Community Since 1987

Original Message:
Sent: 10/21/2020 3:19:00 PM
From: Rita S Williams
Subject: RE: Donation via Company Sale to Employees

Thank you for your responses John and Isaac. The donor who gifted us the promissory note is deceased so the promissory note was willed to us. The "renters" are now paying us monthly. After discussing with the Business Office, we are booking the gift value of the note as a pledge, and the interest as a deferred pledge. There is an amortization schedule and we will split the gift each month (for 10! years) because the interest portion cannot be fully realized currently. The full amount, principal plus interest will go into an endowed fund per donor's wishes. Now our questions are, 1) should the pledges go on the deceased donor's record, 2) if so, should the renters receive soft credit, and 3) are we required to acknowledge the renters (with or without tax verbiage?) after we receive payments? As a side note, we would acknowledge with an annual letter, not monthly. We are just not sure if we are required to or not.

Yes John, there's a ton going on here for sure! Thank you for your input!!

------------------------------
Rita S. Williams
Director of Advancement Services
High Point University, High Point NC
rwillia0@highpoint.edu
------------------------------


Original Message:
Sent: 06-04-2020 12:00 PM
From: Isaac Shalev
Subject: Donation via Company Sale to Employees

In general, if a donor writes a promissory note to you, that's a pledge.

If a donor donates a promissory note that they hold as a creditor (ie debt someone else owes to them), this is a gift of an asset. You will need to get it appraised, and that's the value you can record as a gift. The actual revenue you receive is earned income, just like rent from a property or dividends from a stock. The 'gift' is the right to receive future revenue streams, and that's worth something today.

In practice, this means that your gift value is going to be different from the loan principal+interest payments value, but that's on your business office to reconcile.

Valuing a promissory note from a privately-held business is hard, and valuing a subordinate promissory note is harder. You will need to get an appraisal that basically evaluates the loan as a risky annuity.

These kinds of gifts are very valuable to taxpayers b/c the asset is hard to sell, but if you donate it you get the FMV, ignoring the cost-basis.

Thank you,
Isaac Shalev
CRM Expert
Sage70, Inc.
(917) 859-0151
isaac@sage70.com

Schedule a 30-minute consultation now:

https://calendly.com/sage70/30min