Retained Life Estate
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:
- The "life estate value" of the donor's retained right
to live on (occupy) the property for both the donor's or the donor's
and his or her spouse's actuarial life expectancy. This is a calculation
for taxes and not a limitation of the time the donor and/or spouse can
occupy the property.
- The "gift value" is the difference between the market
value (an appraisal at the time of the gift will be necessary) of the
property and the calculated life estate value. This determines the amount
of the charitable income tax deduction that would apply in the year
of the gift (it is subject to appropriate carry-forward rules if necessary).
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.
A retained life estate allows the donor to maintain his
and/or her lifestyle at at the same time make it possible for the donor
to make a significant gift to a charity.
Jon Calder, Director of Major and Planned Giving
(253) 428-8415
Email:
joncalder@fhshealth.org
Please note, individual financial circumstances will vary. The information on this
site does not constitute legal or tax advice. Donor stories and photographs are
for purposes of illustration only. As with all tax and estate planning, please consult
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