The Life Estate is one of the most commonly overlooked charitable giving vehicles.
Through a Life Estate, a Donor irrevocably transfers title in the Donor’s personal residence or farm to a qualified charitable organization, while retaining an interest in the property for a period of time that is specified in the Life Estate Agreement.
Lifetime Charitable Deduction
The key advantage of the Life Estate is that, because it makes the transfer irrevocable, the Donor is able to claim a current (lifetime) charitable deduction for the gift, which would otherwise not be possible with a Bequest.
In addition to the current income tax deduction benefits, the Donor also retains all beneficial lifetime rights in the property. This includes the ability to rent out the property during their lifetime, and to receive the rents and other economic and tax benefits to which they would otherwise ordinarily be entitled.
The Life Estate Agreement should make provisions for maintenance and other obligations of the property, should the Donor cease to live in the property during their lifetime.
Other options for disposition of the property may be available to the Donor, as permitted by law, including:
- Selling the Property and Dividing the Proceeds;
- Accelerating the Remainder Interests; or
- Splitting the Remainder Interest between the Charity and Non-Charitable Beneficiaries.
Warning About the Complex Nature of Life Estates
The entire Life Estate area is extremely complicated, and is dependent on complex Internal Revenue Service rules and regulations, as well as actuarial calculations and valuations.
Therefore, you should not seriously consider this area without first consulting competent legal counsel.