Gift of Life Estates
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:
- 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 "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
and at the same time makes it possible for the donor to make a significant
gift to a charity.
Return to the Legacy Giving home page or to the Quick Guide to Legacy Gifts.