Room to Share

Donated vacation deals are a mixed blessing for charities

After four years of owning a time share in the Caribbean, James and Helen Kelble, of Gulph Mills, Pa., decided they wanted something different for their vacations, and they put the property up for sale. The couple listed the time share — which gives its owner rights to one week each year in a one-bedroom unit at any of 26 resorts — on Internet resale sites, auction sites, and bulletin boards.

But after several months with no bites, the Kelbles, like a small, but growing number of owners, decided to donate their time-share unit to charity instead.

“It seems like a quick, efficient way of getting rid of it, and the proceeds will benefit a worthy cause,” says Mr. Kelble.

Last month, he and his wife turned their property over to It’sDonated, in Santa Rosa, Calif., one of at least three new companies that sell time shares on behalf of nonprofit groups, splitting the proceeds with them.

Mr. Kelble hopes his time share will fetch $4,000. After It’sDonated takes 35 percent for the sale and pays for other fees associated with the transaction, the Eye Birth Defects Research Foundation, in Los Angeles — one of the handful of charities the company represents — will receive about $2,000.

Donations of time shares have been trickling into charities over the past two decades, many of them left in wills and estates. Nonprofit groups have typically handled them ad hoc, often paying resale brokers to quickly liquidate the properties.

But the number of time-share donations appears to be on the rise as the idea has gained traction among both disenchanted time-share owners looking to unload properties and charities looking for new sources of money.

New Source of Revenue

For owners who want to shed the properties, which may be difficult to sell in a crowded market, handing the time share over to a charity and taking a tax deduction for the gift may be appealing. For charities, the gifts may prove to be a novel way to generate revenue, even if they have to sell the time shares at bargain-basement prices. Dozens of charities are earning at least thousands of dollars each year off time-share donations, and at least one nonprofit group has pulled in more than $90,000 from such gifts since last spring.

But donating and accepting time shares may not always be as clean and easy as it appears.

Charities without the proper expertise to handle selling them may get stuck with unmarketable properties laden with annual costs, and, even when sales are made, the low prices typical on the resale market can erase profits. While middleman companies have sprung up to handle the sometimes tricky sales transactions, their fees can also cut deeply into a charity’s earnings.

Some charity experts also say that the time-share-donation industry could face the same challenges and scrutiny that the car-donation trade has confronted in recent years.

New, tighter tax-deduction rules for car donations went into effect last year, the result of concerns in Congress that too many Americans were inflating the amount they wrote off, and that some companies that run car-donation programs were not passing along enough money to charities.

Sen. Charles E. Grassley, an Iowa Republican who was a chief promoter of the new vehicle-gift rules, says he suspects that time-share donations may be “another car-donations problem in the making,” in which donors come up with what he calls “inappropriately high valuations for their time shares” and take inflated deductions as a result.

Tax laws allow donors to write off the fair market value for their time-share units without an appraisal, as long as they don’t deduct more than $5,000. “We may need to take tax-enforcement swords to time-shares donations,” Senator Grassley wrote in an e-mail message.

3.9 Million Owners

Such sentiments have not dulled interest in the gifts, which is slowly mounting as the time-share industry itself swells.

From 2002 to 2004, the number of households owning time shares jumped by nearly one-quarter, to 3.9 million. In 2004, Americans spent nearly $8-billion buying roughly 500,000 new time shares, according to the latest figures compiled by the American Resort Development Association, a trade group in Washington.

With most time shares, people buy one or more weeks at a resort and can return to that resort every year or, under some deals, exchange it for a stay at another resort. Owners, who pay an average of about $16,000 for a one-week unit, also pay annual maintenance fees and taxes that typically range from $100 to $1,000.

Nobody keeps track of the sale of used time shares, but real-estate brokers familiar with the industry estimate that as many as a million time-share units are available on the resale market at any given time. And, they say, with more buyers than sellers, prices are low and shelf time is long, save for the most-desirable properties.

“We were hearing of so many people who had spent a lot of time and money on advertising and listings or spent thousands of dollars on brokers’ fees and they still couldn’t move their time shares after two years,” says James P. Tarpey, who helped found Donate for a Cause, a Bozeman, Mont., company, spun off from two other time-share-related businesses to handle transactions for charities. “We realized people would be much better off donating them right away, taking their deduction, and not paying those two years’ worth of maintenance fees on a time share they weren’t using and didn’t want.”

Since September 2004, Donate for a Cause has accepted more than 1,000 time shares, selling more than half of them so far for a total of about $550,000.

Of the total revenue, $358,000 — the amount left after the company took its 35-percent fee, plus an additional $190 per transaction to cover costs of transferring the deed — has been given to more than 100 charities. To streamline its business, Donate for a Cause now works with only 10 charities, including its biggest client, the National Foundation for Cancer Research, in Bethesda, Md., which since last spring has received $93,000, its portion of the profits on the sale of time shares donated in its name.

The American Kidney Fund, in Rockville, Md., has earned $26,000 since it became a client of the company in April. “The concept of donating cars took a little while to catch on, and I think in the next five, 10 years this is going to really take off, too,” says Lew Fontek, a fund raiser at the kidney group.

Brokers Add Service

Along with the companies like Donate for a Cause created especially to help charities win time-share donations, a growing number of time-share brokers are dealing with nonprofit groups as a sideline of their regular business.

Sell My Timeshare Now, for example, an online resale and rental company, in Dover, N.H., and Orlando, Fla., is in the process of setting up a system to sell donated time shares on behalf of a New Hampshire college.

Jason Tremblay, the company’s owner, says the company gets a handful of inquiries each day — many more than in previous years — from owners looking to contribute their properties.

“They can’t sell them for a reasonable price in a reasonable amount of time because they don’t have the buyers,” Mr. Tremblay says. “But we do. We can take these off their hands and make a little money, and a charity can make money, too.”

Key to turning a profit for the charity, he says, is to be selective about the kinds of time shares to accept as gifts: “We’re not going to take a March week in Minnesota at a 25-year-old resort.”

Close Inspection

Nonprofit groups have to be particularly choosy about which time shares they can and can’t accept, say experts on the transactions. What may look like an attractive gift could come with unexpected costs and hassles, and may end up not being worth nearly as much as the donor or charity originally thought.

The West Virginia University Foundation was offered two time-share properties, in Virginia and Arkansas, a few years ago by a donor who believed they were together worth about $10,000. After examining the time-share resale market at those resorts, university fund raisers worried they could not sell the time shares easily and decided to turn down the offer.

Says John Fisler, assistant vice president for development at the foundation: “We didn’t want to sit on this thing if we couldn’t sell it.”

Because of taxes and property fees, the longer a time share goes unsold, the more the costs can pile up for the charity that owns it.

Baptist Children’s Home and Family Services, in Carmi, Ill., was given two Florida time shares in 2003. Before the charity finally found a buyer for them last year, it had to pay more than $1,200 to cover the properties’ annual maintenance fees and a special assessment to clean up storm damage after a hurricane.

The charity has been unable to sell a third time share it received, also in 2003, paying more than $500 in fees on it so far each year.

“The donors thought they were doing something great for us,” says Lowell Huffstutler, the group’s director of accounting, explaining that both the gifts were from elderly donors who had enjoyed the properties, but were no longer able to vacation there.

“The next time we get an offer like that we’ll suggest, How about selling it yourself and giving us the money,” he says.

West Virginia’s Mr. Fisler and other fund raisers say that each offer must be considered separately, weighing, among other things, the relationship with the donor.

“Is this someone you can go back to and say, This is not quite the big gift you thought it was,” Mr. Fisler asks. “Or you have to decide: Is this someone who has given us so much support that we ought to give serious thought to accepting such a gift?”

The Marin Community Foundation, in Novato, Calif., took on a time share as a favor to a local lawyer who was handling the estate of a big donor. Administrators liquidating the estate’s assets couldn’t find a buyer for a one-bedroom time share in downtown San Francisco. They asked the foundation, which was already receiving $3-million from the estate, to accept the property as a gift. After nearly a year, the foundation finally found a broker to buy it for less than $1,000.

“We didn’t want it, but we thought it was the decent thing to do because we had a relationship with the estate attorney,” says Aviva Shiff Boedecker, Marin’s director of gift planning. “Also, we had had a relationship with the donor, and we wanted to be gracious.”

Noncash Benefits

Accepting time-share donations may be a way to create new relationships with donors, too, some fund raisers say.

International Hearing Dog, in Henderson, Colo., which trains dogs to assist people who are hearing impaired, is one of the charities working with Donate for a Cause. Since November, the group has received nearly $5,000 from the time shares sold on its behalf.

“The added benefit is that Donate for a Cause is finding people who don’t know about us, but who now become donors,” says Maria Ferguson, a spokeswoman for the group. “They’ll be on our mailing list now. They’ll get our quarterly newsletter, and maybe we will connect with them in other ways.”

But even with the prospects of a cash return and some exposure to new donors, plenty of charity officials and fund-raising experts say that charities ought to stay away from time-share donations altogether. And at least one charity, which had been regularly accepting such gifts since 2001, is now getting out of the business.

The German Language School, a Seattle group that runs weekend German classes, had been accepting time shares through a program run by the wife of one of the school’s top volunteers — until recently, when new board members shut the program down, citing concerns about oversight.

Linda S. Kuehl, who ran the program, says that at any one time the school owned as many as 200 time shares that it was seeking to sell.

Liability Risk

Being a deed holder can be dangerous for nonprofit groups for reasons beyond the immediate costs of fees and taxes, says Chase V. Magnuson, president of Real Estate for Charities, a consulting company in Carlsbad, Calif. He says charities need to be mindful that taking title to a piece of real estate, even if it is only a shared vacation spot, means taking on all the expenses and potential liabilities associated with it. If a property runs into legal troubles down the road or faces an environmental-impact problem, for example, he says, a charity that held the title at one point could be on the hook as a former owner.

“If it’s a house or land, something with real value, it may make sense for a charity to take on the risk of a future liability for a $50,000 gift,” Mr. Magnuson says. “That doesn’t make any sense for a $2,000 gift.”

Ed John, vice president of planned giving at the United Way of America, in Alexandria, Va., says time-share gifts are also fraught with public-relations risks.

If a charity has a time share it cannot unload for some period of time, he says, “people will start asking why you are holding a condo in the Caribbean.” And, he says, some donors may not appreciate charities’ working with for-profit resale companies that take a hefty chunk of the profits, especially on relatively small deals.

The Kelbles, who have a new time-share deal that gives them access to nine golf resorts in Mexico, applaud the creativity of charities willing to accept donations of time shares.

“If the charities know what they are doing and know the risks, this can be a good deal for them,” Mr. Kelble says. “I’d donate this way in the future, and I am sure there are a lot of others who would, too. There are plenty, plenty of time shares out there.”