Remainder Interests in Real Property

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To take advantage of lifetime charitable tax deductions, a couple may decide to give a personal residence to a favorite charity while retaining the right to live in the home throughout the rest of one or both of their lives or for a period of years. The gift is made by a deed to the charity along with an accompanying agreement between the charity and the life tenants regarding rights and responsibilities of each.

This type of gift can be particularly advantageous if the house has appreciated; you can take a charitable deduction based on the appreciated value without ever having to pay tax on the appreciation. Your deduction will be reduced, however, by the value you and your partner retain by living in the house for your lifetimes.

Gifts of retained life estates can be made during your lifetime or after your death for the benefit of a partner or another individual, thereby reducing your estate while providing a home for your surviving partner. However, you should not make such a gift if you want to retain the house for future generations or if there is a mortgage on the home.

Example: Angus and Beth have lived together as partners for 20 years, though they have chosen not to marry. Angus originally bought the home they currently occupy and has owned it outright for more than 25 years. During that time, it has appreciated greatly and is now his largest asset. He has often talked about wanting to donate it to support engineering programs at Duke. Beth understands Angus’ interest but wants assurance that she can continue living in their home if she survives him. To accomplish their mutual goals of preserving Beth’s home and fulfilling Angus’ philanthropic goals, Angus has given Duke the interest in their home while retaining a life estate—the right to remain there throughout his and Beth’s lifetimes. After both Angus and Beth pass away, Duke will sell the home and use the proceeds to fund the engineering programs Angus has chosen to support.

To learn more about gifts of retained life estates, contact a member of our team or explore the real estate and tangible public property section of our website.