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Retained Life Estates

Complete Gift Description

With the children grown, you may be thinking that within a few years you won’t be using the cabin anymore. Or, perhaps you’re thinking of making a permanent move to a warmer client – but want to test out the waters first. These are both ideal situations for a retained life estate.

A retained life estate deed allows you to donate your personal residence (such as a home, cabin, or farm) while retaining the right to live on and use the property. When you make the gift, you retain the right to use the property for the rest of your life, a term of years, or a combination of the two. In exchange for your remainder interest gift, you receive an immediate income tax deduction.

How does a retained life estate work?

This creative gift plan transfers your house to the MU Foundation but reserves a free lifetime tenancy to you. You can make a significant gift to the MU Foundation with the most valuable asset you hold, yet not disturb your living arrangements or your cash flow.

You will continue to be responsible for the house's ongoing taxes, structural maintenance and upkeep. Also, we mutually agree up front about what we will do if you no longer wish to live in the house after you have donated it to the MU Foundation, or if you become physically unable to continue living there. Your gift will provide you with a charitable income tax deduction, based on the fair market value of your house minus the present value of the life tenancy you have retained.

What are some considerations of which I should be aware if I’m contemplating this arrangement?

  • First, as with all gifts of real estate, we must review and approve the transfer.
  • You will need to secure an independent appraisal of your home to establish its value for the deduction.
  • And finally, if there is a mortgage or lien on your home, it will complicate the transfer to us and could result in taxable income to you.

Our office can advise you on all these matters.

Can you tell me how the numbers work?

Obviously, your exact benefits will depend on the value of property you are contributing, its condition, your age, and other market factors. However, we provided an example to give you a better sense of the benefits of a retained life estate.