- Give a residence or farm during your lifetime but retain the right to use it for the rest of your life (and/or the life of a loved one).
- Immediate charitable income tax deduction for a future gift.
Retained Life Estate
Jim Green, 58, is an executive with a national corporation.
Jim and his wife Ellen, 55, have two adult children. In the past both have served on the board of the United Way, and the couple would like to make a major gift to benefit the United Way Foundation. Jim owns a lakefront home that has appreciated a great deal since it was purchased. He and his family often spent weekends and vacations at the lake. Jim and Ellen still spend almost every weekend at their lake home, but the children’s careers have taken them far away and they rarely get home to join their parents at the lake. Jim understands that their estate may have to sell the lake home to help pay estate taxes, and the family’s estate would be more liquid if the lake home were excluded. Jim and Ellen do not want to sell the home because of huge capital gains tax liability and, of course, because they want to continue using it on weekends. After discussing this with an officer of the United Way Foundation and their tax and legal advisors, Jim and Ellen decide to use the home to create a retained life estate. This means the United Way Foundation will take ownership of the property now but Jim and Ellen will retain the right to use it, be responsible to insure and maintain it for their lifetimes. Since the home appraises for $500,000, the Greens will receive a tax deduction of just under $200,000 which, in their 40% income tax bracket, will save them $80,000 in taxes. Their estate will have lower taxes and greater liquidity.