Life Estate Agreements

qualify for an immediate tax deduction and continue to live in your house

A life estate agreement allows you to donate your residence to Domestic Violence Solutions, qualify for an immediate tax deduction, and continue to live in and enjoy your property for as long as you, and/or your spouse, may live. At the end of the term of the agreement, owwnership of the residence transfers to Domestic Violence Solutions.

For example, Mrs. Tucker is a 75-year-old widow with no children. She is in good health and lives in a home that has been mortgage-free for many years. As she has no children, the majority of her estate is intended for charity. In the meantime, however, she has an annual income of $60,000 from a retirement plan, annuities, tax-exempt bonds, and social security.

Because Mrs. Tucker has very few tax deductions now and intends that most of her estate go to charity upon her death, her accountant suggested that she reduce her present income taxes by donating her home to charity with a retained life estate.

Under a life estate agreement, Mrs. Tucker can continue to live in and enjoy all of the benefits of her home for as long as she lives, after which, the property will go to the charitable organization she selected. Mrs. Tucker receives a present income tax deduction for the actuarial present value of her future gift.

Based on an appraised fair market value of $150,000, Mrs. Tucker will receive a current income tax deduction of $73,418, which can be used against 30% of her adjusted gross income (AGI). She can also carry over any excess amount for the next four years.

So, in the year of her gift, Mrs. Tucker can claim an $18,000 charitable deduction against her AGI of $60,000, and can use the remaining $55,418 of deduction over the next four years. Assuming a combined federal and state tax bracket of 25%, the deduction will save Mrs. Tucker a total of $18,354.

For estate tax purposes, the result is the same as if Mrs. Tucker had made a charitable bequest of her residence. However, in addition to the estate tax benefits, the life estate agreement gives Mrs. Tucker a significant income tax benefit during her lifetime.