Retained Life Estate:

Questions Donors Ask

Do I have any other option other than having the charity take possession of the house should I want to move out of the property prior to my death?

If the donor negotiates a provision in the RLE contract for the right to lease the property for the remainder of your life estate, they can keep the additional money. They remain responsible for the taxes, insurance and maintenance expenses spelled out in the agreement with the charity.

Who is responsible for building modifications, additions and custom items like a work shop, extra garage or swimming pools?

The donor. Most likely the RLE contract will contain a provision that requires them to get prior approval from your organization to make such improvements.

Can we move out and then back in?

Yes. The use of the asset is the donor’s. Should the donor decide to lease for a while and then move back in, this gifting concept allows for that.

Can we use our second home to create a RLE?

Yes. If the property qualifies under the IRS rules, it can be used to create this type of donation arrangement — i.e., the donor doesn’t take depreciation or own it in a corporate structure, etc. Donors should check with their accountant to make sure it qualifies.

What if I want to make improvements to the home?

Donors can make improvements to the property, but the donor may need to get your organization’s approval for large improvements that could change the nature of the property. The RLE gift agreement will set forth the requirements.

How do the numbers work?

The donor’s exact benefits will depend on the value of the property contributed, their (or their life tenant’s) age, and applicable factors (like depreciation adjustment and applicable federal rate).

When should I establish an RLE?
  • RLEs are most commonly used when the donor 1) has no natural heirs and the estate will benefit your organization in the future or 2) owns a home, vacation home, or farm that is remote from children or other heirs who do not want the hassle of liquidating the property at the donor’s passing.
  • When donors have no natural heirs and the property is coming to your organization when a donor dies, an RLE allows donors to claim an immediate income-tax charitable deduction for the charitable gift of a portion of the property now, even though nothing else about their situation changes in regard to the property until their death. In many cases, this deduction can be significant.
  • When the donor owns a home, vacation home or farm that heirs don’t want, that property can be a wonderful resource for an RLE. Donors will be able to claim a current income-tax charitable deduction for the value of the remainder interest given to your organization, and the donor will be able to use and enjoy the property for life. When the remainder interest is realized, your organization will own the property free and clear. The property will not need to be probated as part of the donor’s estate and will not be part of their taxable estate.