Let’s assume that you wish to leave your home or farm, or a portion thereof to your church or another qualified charity. If you do so in your will, you will not receive a current income tax deduction. Alternatively, you could gift your home, farm, or a portion thereof to the qualified charity or church and retain a life estate. This way you’re able to continue living in your home or running your farm, while receiving a current income tax deduction. A possible drawback is that the will could be changed prior to your passing, whereas, the gift cannot.
A person could gift their home or farm to their church or qualified charity and get a present income tax deduction even though the charity can’t have use of the property until after the death of the owner, the owner and spouse, the death of another specified person, or after a specified period of time. Because of the retained life estate, the owner still has use of the property. Again, if the property was left to the charity by a will, there would be no immediate income tax deduction.
In the case of a retained interest in a farm, it could just be a portion (i.e. 10 acres out of 100 acres) or it could be an interest each year, for a number of years, thus receiving an income tax deduction over a period of years. This might result in a greater tax advantage because each year you are older coupled with the fact that the property could be appreciating in the meantime. One of the factors in the calculation of the tax deductions is the owner’s age. The older the donor, the greater the deduction. Similarly, gifts of partial interests in your home could also be made.
Also, note that the charity could sell their interest so that they don’t have to wait to have available funds. This might be something the donor would encourage so they can see their charity benefit now.
This is a technique that could be used exclusively or combined with other available charitable giving tools.
Please note that this is a simplified and abbreviated presentation. You should consult with your professional advisors prior to implementing this strategy. Contact us if you would like to discuss this or other charitable planning techniques.