There is a saying among charitable gift planners: “beware of donors of in-kind property with valuations in hand.”  In other words, some gifts may be too good to be true.  This folk wisdom contains a serious point. Donors, executors and charities often struggle with the valuation of in-kind donation.  Who commissions and pays for in-kind donation appraisals, the donor or charity? Does the valuation have integrity?

Standard Practice

The recommended practice is for the charity to be responsible for the appraisal of in-kind donations. The charity must stand behind the fair market value on its donation tax receipt. This starts with having confidence in the appraiser and the process.  So, the charity selects and hires the valuator.  Some high-value donations require more than one appraisal.

The wrinkle is that most charities don’t have funds to pay for appraisals.  Hence, they ask the donor to make a cash donation to pay for the independent, third-party valuation. This makes practical sense, but it can also provide the donor with a voice in the process.

Charity Variations

Of course, practice varies by charity.  Most of Canada’s 86,000 charities don’t have gift acceptance policies.  Some won’t accept any in-kind donations.  And if they do, it is difficult to develop a policies that covers all types of property.

Some charities ask the donor to secure the valuation.  If so, it must be recent, from a qualified appraiser, and appropriate for the value of the property to be donated.  There are rules, but it’s up to the donor to deliver.  The charity must have faith that the appraiser is professionally qualified and will not be swayed by donor pressure for a higher-value receipt.

The appraised value of a piece of donated property often has a wide range.  Donors who are collectors – be it cars, art or ephemera – frequently know dealers and appraisers.  These collectors have detailed market knowledge that may leads to higher valuations.  Ditto, owners of real estate and private shares know their assets best. This inside knowledge can be used to help the charity or just benefit the donor.

Government Rule

Even federal government programs have different rules.  The Ecological Gifts Program, which is administered by Environment Canada, requires the donor to provide a single appraisal prepared by an appraiser from an approved list.  The Minister of the Environment determines final value.

A similar regime exists for cultural property donations.  The recipient cultural institution provides a valuation from a qualified appraiser.  The Canada Cultural Property Export and Review Board, however, determines final value, an approach that periodically leads to headlines.  These Federal tax incentive programs provide extra tax incentives, hence the Government retains final say on valuation.

Ordinary registered charities face greater challenges.  If a charity needs to rely on the donor to pay for the valuation this process can influence the choice of valuator the charity makes.  For example, the donor may recommend a cheaper real estate appraiser or lighter valuation report.  An “estimate valuation report” of a donation of private company shares will be less expensive and indepth than a “comprehensive valuation report”.  It’s important for charities to understand these dynamic when considering acceptance of a donation.

Estate donations

The 2016 “estate donation” rules have changed the involvement of charities in the valuation process.  Pre-2016, the executor would value the property at death for the terminal T1 tax filing.  Post-2016, a piece of property is valued at date of death, but that value may be inapplicable when the property is transferred to the named charity 23 months later.

The charity needs to ascertain the current value of the estate donation at time of transfer in order to issue a tax receipt.  The charity may need to pay for the valuation.  Alternately, the estate could pay for an updated appraisal using criteria established by the receiving charity or negotiate the executor to use an agreed upon standards.

The estate donation rules are, in some ways, more complex and expensive to administer, at least from the executor’s perspective.  From the charity’s perspective, there is more opportunity to ensure the valuation is sound and current.  One way or another, we will see greater future need for valuing in-kind property donations.