Retained Life Estate
There are few assets that provide the combination of life enjoyment, tax advantages, and investment potential that real estate offers. On the other hand, there are few assets that can, for practical purposes, tie up such a sizable portion of your net worth.
The "Retained Life Estate" arrangement is an opportunity to continue living in or using your home, vacation home, or farm while also establishing a gift now - and enjoy the benefits, including current tax savings, that usually characterize only lifetime charitable gifts.
Why fund a charitable gift with real estate?
Unless you sell the property, your options for receiving current financial benefits from the real estate are usually limited to increasing your debt or renting the property to someone else. Real property can also be a significant hassle for estate planning, since it is rarely practical to transfer a single property to more than one heir. The result is a choice between leaving inequitable benefits for heirs and placing the burden - and costs - of selling the property onto your executor and estate. Property located in different states may be subject to additional probate and transfer costs.
How can I get paid for enjoying my real property?
The "retained life estate" arrangement is an opportunity to fund a charitable gift with your home, vacation home, or farm. While nothing changes in your current lifestyle or use of the property, the retained life estate arrangement generates a sizable income tax deduction for you in the year you establish the gift. At the end of the retained life estate term (usually your lifetime or joint lifetimes), the property goes to Augustana as the charitable recipient. This is just the basic form of a retained life estate arrangement.
Why should I establish a retained life estate arrangement?
First of all, as with a bequest through your will, you can retain maximum use and enjoyment of the property throughout your lifetime. Unlike a bequest, however, the income tax deduction is available in the year you establish the retained life estate arrangement. If you're experiencing high income tax liability, or just a desire for additional cash to spend, the retained life estate arrangement is a painless way to derive cash from illiquid property and contribute to Augustana's educational mission. You also will be removing a potential headache, expensive probate item, and taxable asset from your estate.
Can my family continue enjoying the property after my death?
This can be accomplished by applying the tax savings, earned through your income tax charitable deduction, to an investment portfolio or single-premium life insurance policy. Your children can apply the proceeds to re-purchasing the home from Augustana when the retained life estate term expires. Augustana will receive a wonderful gift and the home will remain among the family!
What if I depend on the property for income?
A retained life estate arrangement will allow you to continue utilizing the property productively or renting it to others during your lifetime. You can then enjoy the income tax savings currently or save it for future goals or your heirs.
What if I will need some of the proceeds when the property is eventually sold?
You may have planned on eventually selling the property and using part of the proceeds to pay for a future need, such as a smaller home or retirement community admission fees. It is possible to establish a retained life estate arrangement for only a portion of the property value. At the end of the retained life estate term, the property can be sold and the proceeds split between you and Augustana.
Alternatively, if you establish the retained life estate term for life and decide to relinquish the property during your lifetime, you will earn an additional income tax charitable deduction for the remaining life estate interest that you have relinquished.
If you would like to learn more about Augustana Founders and including Augustana in your estate provisions, please contact:
Stephen M. Davis, Assistant Vice President of Legacy Planning
639 38th Street
Rock Island, IL 61201
(800) 798-8100 x7587