Some people anticipate a gift to Scouting of a home, vacation home or farm sometime in the future, but may not want to give up the use of their property yet. Its possible to do both with a life estate gift. Its simply a contract arrangement where you give Scouting the rights to your property after your lifetime, but you keep the right to use and enjoy it for the rest of your life (or the life of another). If the property is income producing (e.g., from rent, crops, timber, etc.), youre also entitled to keep any income it produces during your lifetime.
Though Scouting has no right to use or possess the property until after your lifetime, you receive an immediate income tax deduction for part of the propertys value. Also, the property wont be in your estate at death, so your estate may save taxes and probate costs as well.
Example: Mr. and Mrs. Donor, both about 70, have a vacation home worth about $200,000. They use it a few weeks a year and rent it out the rest of the time. They plan to do something for their local council, but dont want to give up their vacation home yet. They make a life estate gift with their council. They continue to use the property just as always. They still get all the rental income, it is no longer in their taxable estate, and they also get an immediate income tax deduction of about $68,000. Only at the end of their lifetimes can the council use the property.
- If you make a life estate gift, and at some point decide you no longer want to use your property, you can simply give the council your remaining rights in the property and receive additional tax benefits at that time.
- The value of a tax deduction for a life estate gift is determined by the value of the land and the age of the life tenants. The older the donor, the larger the income tax deduction.
Real estate can also play an important role in income producing trusts; this will be discussed later in the booklet.