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Retained life estates let you give and live in your home

On Behalf of | Dec 4, 2019 | Estate Planning |

Many people find great reasons to include charitable giving as part of their estate planning, even beyond the chance to make a bigger difference in the world.

Organizations and causes that need the funds are too many to count, but there are many smart ways for gifting assets strategically that provide novel approaches.

One such strategy, the retained life estate, is a less than typical method, yielding certain advantages and cautions when included as a means of charitable giving in an estate plan.

Retained life estate basics

People who create a retained life estate often give their residential or other property to a charitable organization. They can specify that they will continue living in the property until they pass away or for some other specified period.

When the time comes, the charity can fully claim the property as its own. Universities, land trusts and environmental organizations often encourage donors to consider this long-term arrangement.

Why charitable givers choose retained life estates

Continued use of property donated subject to a life estate is most often a primary advantage.

Consider that the property does not go through probate’s public and often costly court process. Instead, the charity owns the property outright immediately on the stated event, typically when the donor passes away.

Tax benefits can be significant since donors can take a charitable deduction in the year they make the gift. If it improves their tax position, they can spread the deduction out over five years. Also, because the charity officially holds the title upon signing, donors benefit with a smaller taxable estate, producing estate tax savings.

Other complications of a big decision

Another motivation for a transfer with some retention may be qualification for Medicaid. If properly structured, when a donor no longer has title to the property, Medicaid cannot look to that property for estate recovery. On the other hand, transfers of property often affect the timing of a person’s ineligibility for Medicaid.

Consideration should be made for other alternatives. For example, if the donor instead sells a house on the market, he may take for a capital gain exclusion of up to $500,000. The exact exclusion in a given case may discourage or encourage a retained life estate gift.

Gifting with a retained life estate is a major move that deserves study from every angle with the help of professionals.


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