Charitable Trusts

Retained life estates are similar to charitable remainder trusts, except they have to do with real estate, most often the primary residence of the donor. Typically, a donor gives his or her home to a charity, and in return retains a free life estate. A life estate is the right to use the property for the life of the person to whom it is granted. In other words, the donor may continue living in the home rent-free for life.

This technique has a number of advantages. First, the owner may take an immediate tax deduction for the value of the house. Second, the owner can effectively avoid paying property taxes on the house for the rest of his or her life. This is because the holder of the life estate does not actually own the property any more. Rather, the charity retains ownership, and is typically exempt from property taxes.

This creates the closest thing to expense-free housing one can get. It can work well for an older person who wants to remain in his or her residence for life, but is worried about paying escalating property taxes. Further, it has the added benefit of creating a substantial benefit to charity while avoiding estate taxes.

There are some things to watch out for, however. The holder of a life estate has a duty to take reasonable care of the property. If the life estate holder causes undue wear, waste, or damage to the property, he or she can technically be liable to the owner of the property for the damage done. Chances are good that this obligation may be waived when taking a charitable retained life estate. However, this little complication serves as one more reason why you would be well served to consult an attorney before using this sort of strategy.

A number of charitable organizations make use of the Retained Life Estate technique, including the American Heart Association.

Charitable Trusts | Privacy Policy | Legal Disclaimer | Contact Us |