A Hole in the Water: A Tale of the Yacht Donation

A Hole in the Water: A Tale of the Yacht Donation

Article posted in Tangible Personal Property on 8 December 2004| 5 comments
audience: National Publication | last updated: 18 May 2011
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Summary

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 Design Center

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 Reading:

A brief web search produced the following examples of vessel donation programs and resources:*

Maine Maritime Academy
For donors: Why and how to donate a boat, acceptance policies, and forms
http://supersloop.mma.edu/BoatDonations/

University of Miami
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 Planned Giving Design Center.

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Comments

boats and charitable auctions

Dawn is absolutely correct! A good 3rd party charitable auto (auction) organization can take care of all the paperwork and streamline donations of boats, RVs and automobiles. Non-profits should do their homework because not all of these organizations operate the same and the end result should result in a satisfied donor and most of the proceeds benefiting the non-profit, NOT the auction house. However, a great one can really make a difference in your annual fund results.

Boat donation s(t)inks

Let this be a lesson to all in development: every nonprofit needs to have a gift acceptance policy in place to avoid such embarrassing situations. Without it, how do you turn down any off-the-wall gift from a "well-meaning" board member without offense? That said, we do not yet have one in place, but it's in the drafting stage.

Shared laments

Marc, what a great article on yacht donations! And funny to boot. I began my career 21.5 years ago by starting a yacht donation program for an august university in the Middle Atlantic states. While I had a survey done in all cases, I still ran into a cacophony of problems, particularly when I moved to Florida to take advantage of the larger vessels, and larger volume, being offered there. I wonxc2xbft even get into the lease/purchase procedures we used to get around the Form 8282 requirements. Has the statute of limitations run out? Thanks for the memories. NOT! John C. Scibek Director of Planned Giving University of Montana Foundation

Boats, boats, boats

In another life with a YMCA camping program, boat gifts were fitting, full of surprises, and always a reminder that a boat is a hole in the water into which man pours money. I am proud of the fact that the last such gift I facilitated was well over 15 years ago! Want to talk about gifts of horses? Boat gifts are nothing compared to those. Ha!

Donating Today

I realize this posting is years old, but now there are charitable organizations out there that allow you to donate boat, car or other vehicles in not necessarily working condition. They accept the donation and perform the maintenance as a 100% charity service to communities everywhere, and you can do much of the work online. I think it's interesting how much technology, in just a few years, has helped bring charitable organizations closer to the people they're trying to help. Cheers to your good work!

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