Wednesday, December 08, 2004 Posted: 11:44 AM EST
A Hole in the Water: A Tale of the Yacht Donation
It has
been said the two happiest days in the life of a boat owner are the day they
buy their pride and joy and the day they sell it. There might be a third--the
day they give it away! In this tongue-in-cheek cautionary tale, recovering boat
owner and PGDC Editor Marc Hoffman tells a story about one that, to use a
related metaphor, unfortunately didn't get away.
by Marc D. Hoffman
Editor-in-Chief
Planned Giving
Murphy's Law has a
special affinity for watercraft. Following is a semi-fictional story that
paints an interesting picture of what can happen when the charity is not
prepared to ask the right questions before accepting a gift.
Once upon a time, a well-meaning and long-time donor proposed to give his
twenty-year-old 40-foot motor yacht, named Company Business, to his
favorite charitable organization. He had purchased the boat in the mid-70s and
suggested it was worth at least $60,000 because he had seen similar boats
advertised for as much in the newspaper. Excited about the prospect of such a
major gift, the charity's development officer visited the boat, saw it is still
floating, and graciously accepted it with no further questions. Title was transferred
and the foundation was now experiencing one of those happy days I mentioned
earlier.
As the paperwork was being signed, the donor told the fundraiser that he better
go up to the harbormaster's office and transfer the paperwork on the slip into
the name of the foundation. Thirty minutes later, new forms were complete. The
slip would cost the foundation $400 per month plus deposit. So
far, so good. Next came finding a buyer.
After several phone calls, a reputable yacht broker was retained. The first thing
he requested was a copy of the marine survey and valuation report. "What
is that?" the development officer asked. "A survey," the broker
told him, "is an inspection that is performed by an expert that documents
the condition of the vessel and any problems that might affect its
seaworthiness, along with an estimate of fair market value." In order to
perform the survey, the boat had to be placed in drydock.
After another $700, the surveyor delivered the survey report and estimate of
market value. The fundraiser was ecstatic because he was spending a lot of time
on Company Business learning all kinds of new words and phrases like
"electrolysis" and "through-hull fitting." The surveyor
estimated the value at $22,000. "Why not $60,000?" the development
officer asked with obvious disappointment. "Well, the $60,000 boats have
diesel engines and a new electronics. This one has gasoline engines and, worse
yet, they are saltwater cooled. Furthermore, the logs show they haven't been
run very much lately so they may be a little stiff. And see these electronics?
I haven't seen these in years." The surveyor then mentioned something
about Marconi under his breath. "And I was surprised not to see that
many blisters." "Blisters, what are blisters?" the development
officer asked. "Oh, these particular boats are notorious for having the gelcoat on the hull bubble up after a few years. They're
built in the northwest where there was too much humidity when the hulls were
laid up you know." Well, the fundraiser now knew. "Yeah, it can
happen at any time too." "Oh great," the fundraiser thought, as
he had visions of the Sword of Damocles slicing the boat in half.
The survey report also included a laundry list of maintenance items that would
need to be performed to keep the boat seaworthy. These included replacement of
several through-hull fittings and several "nonstandard" fuel lines.
"She also needs new props, zincs, and anti-fouling bottom paint," the
surveyor commented. "The electrolysis in this part of the harbor is just
terrible. Just eats the propellers right off!"
Three thousand dollars later, "she" is barnacle free and back in the
water looking virtually no different than when she left. During this time, the
development officer was trying frantically to locate insurance because the
donor's policy was due to run out at the end of the month. Insurance was
finally located; however, Sea You Coming Casualty & Calamity would
only sell a policy with the entire $1,000 annual premium paid in advance with
no prorated refund even if the boat was sold the very next day.
The month was now December; not exactly the height of the boating or boat
buying season. Over the next five months, several potential buyers were located
and one finally made a $21,000 offer subject to taking the boat out on a sea
trial; the equivalent of taking a car out for a spin. About
one hundred yards past the end of the breakwater, the port engine blew a head
gasket and had to be shut down. After limping back to port, the buyer's
offer was promptly reduced to $20,000 and he would handle the repairs.
The fundraiser was now tired of learning new nautical terms because he had
concluded that every new word cost the foundation about $500. Having paid slip
fees for six months and repairs, the development officer gladly accepted the
offer. The buyer would start gathering his funds to conclude the deal the
following week. The next morning, however, the development officer received a
call from the harbormaster. "Do you own the boat in slip 34? I'm afraid
she sunk in her slip last night. Don't know what happened but something must
have let loose," he speculated. Indeed, it was later determined a simple
bait tank line had ruptured during the night. In the background, the fundraiser
heard his fax machine buzzing away. Adding insult to injury, it was the $2,000
sales commission invoice from the yacht broker who had satisfied his
contractual requirement of presenting a bona fide offer. The buyer,
however, was now gone because he was not in the market for a submarine.
After another six months, the charity finally settled with the insurance
company for $22,000. The net amount to the charity after payment of all
expenses, commissions, and deductibles was $9,000, not including the
development officer's time and numerous 100-mile round trips to the harbor.
Amortize the time and opportunity cost and the gift was probably a breakeven.
In the meantime, the donor had obtained a separate appraisal and filed his tax
return on which he claimed a $60,000 charitable deduction. One year after the
charity filed Form 8282, which reports sales of property contributed to charity
made within two-years of contribution, the donor's return was audited. The IRS
reduced the donor's deduction from $60,000 to $21,000, charged him back taxes
and interest, and further imposed a penalty equal to 30% of the overvaluation.
The well-meaning donor who made the gift with the best of intentions was not
happy. Did I mention he was on the board of the charitable donee?
Is there a moral to this story? Notwithstanding the fact the law that applies
to vehicle donations including boats will change on January 1, 2005, boats can
still make great gifts to many organizations. However, advisors, development
officers, and donors need to ask the right questions, do the research, and make
sure all parties have realistic expectations in advance, lest the charitable donee become a donor itself.
Additional
A brief web search produced the following examples of vessel donation programs
and resources:*
For donors: Why and how to donate a boat, acceptance policies, and forms
http://supersloop.mma.edu/BoatDonations/
Committee for Vessels Donated - Terms of Reference
http://www.miami.edu/UMH/CDA/UMH_Main/1,1770,8348-1;11709-3,00.html
World Vision
Online Vessel Donation Form
http://www.worldvision.org/Worldvision/KeyContr.nsf/boat?OpenForm
* These sites are
provided for informational purposes only and do not constitute an endorsement
or warranty by the