Goal: Give your personal residence or
farm, but retain life use
Benefit: tax advantages plus use of the property for your lifetime
A retained life estate is a gift plan defined by federal tax law allowing the donation of a personal residence (to include a vacation home) or farm with the donor retaining the right to life enjoyment. A life estate may be retained for one or more lives or it may be retained for a term of years. All routine expenses - maintenance fees, property taxes, repairs, etc. - are the responsibility of the donor. The donor receives income tax benefits in the year of the gift (the property is irrevocably deeded to the charity) and estate tax benefits.
For the purposes of taxes, the property within a retained life estate is divided into two parts:
At the time of death of the final owner of the life estate, the property passes into the possession of the charity.
Should the donor decide to sell the property that is subject to a life estate, that can be accomplished in partnership with the charity. At the time of the sale, the remaining value of the life estate is calculated and the proceeds from the sale are dived proportionately between the charity and the donor. The donor may also decide to gift the remaining value of the life estate to the charity and, in so doing, would receive a charitable tax deduction for the value of the life estate at the time of the gift.