Sometimes it's worth getting into the weeds
Jason D. Tripp, CFP?, FCEP
Executive Director of Gift Planning at Syracuse University
Real Estate is a core component of the net worth of most people, especially those with the capacity to make substantial impact to our charitable mission. Including real estate in a charitable giving plan can be complex and often includes conversations about timing, estate planning concerns, other beneficiary's interests in the property, and fluctuating value. It can include everything from an outright bequest to a testamentary CRT/CGA, or other techniques. In this edition of Gift Planning Tidbits I want to share an insight into an often considered, but rarely utilized gift technique- The Retained Life Estate, but even more specifically- the ability to split the interest in a piece of real estate between charitable beneficiaries and individual persons. Let's get right into the weeds- there is gold hidden there for those willing to hunt for it.
Property gifts are typically transfers of an entire asset. In fact there are limitations imposed on partial interest gifts, and disallowance of charitable gift tax deductions on many partial interest gifts to avoid abuses by those with devious scruples seeking to manipulate charitable tax benefits. However, if a donor owns real property and wishes to transfer a percentage of that property to charity while transferring a percentage to non-charitable beneficiaries, that can be accomplished. It does not have to be an all-or-nothing proposition when discussing the use of a donor's real property to fulfill their philanthropic dreams. This realization might open up many new gift conversations with donors who own valuable property and who might be willing to split the interest between our charitable cause and their other living heirs who wish to benefit as well.
Revenue Ruling 87-37 specifically addresses providing a remainder interest in a personal residence to a charity as a tenant in common with a noncharitable interest.
Retained Life Estates (RLE) are one of the most underutilized gift techniques in all of Gift Planning. With an RLE, the donor irrevocably deeds a personal residence or farm to one or more charitable (and possibly non-charitable) beneficiaries, but retains the right to live in it for the rest of the donor's life, a term of years, or a combination of the two, often the life of the donor and their spouse. When the life estate ends, the charity (and perhaps children as co-tenants in common) sell the property and share the proceeds.
It's important to note that the donor(s) may wish to vacate the property early, if they wish to move into a retirement community, for instance. In that event, the donors simply surrenders the remaining life estate and receives an additional income tax deduction for their accelerated contribution, much like terminating a CRT or CGA early.
领英推荐
As with all complex gift arrangements there are a variety of issues to contend with, advisors to consult, and details to be arranged, but grasping the concept is what matters most right now. Facilitating a conversation that allows a donor to consider their ability to make a substantial planned gift while also planning for their non-charitable heir's benefit is the ultimate win-win-win. The donor receives multiple benefits- an immediate tax deduction, the removal of that asset from their estate, and perhaps the biggest benefit- clarity of how their primary asset will be handled after they are gone. The children receive benefits as well- proceeds from the eventual sale and perhaps a reduced estate tax liability. And finally, of course, our charity receives a substantial gift from the donor in the form of the proceeds from the sale of the property.
Gift Planning done best is holistic in nature. We provide real added value when we solve problems for our donors that extend well beyond their interest in supporting our mission. In the world of finance there is a term called "Alpha". It is a measurement of "excess-return" in relation to a chosen benchmark. If an investment has a high alpha, it is providing more value, more return, than its comparable peers. Gift Planners who can bring added value to their donor relationships are representative of this concept. Being comfortable in the weeds is key to your success. Being a reliable guide through that complexity for our donors will elevate your standing, give you a high alpha so to speak, and ultimately help you expand the scope of gifts that facilitate a positive long term impact on our organizations.
Happy Hunting, Happy Holidays and best wishes for a productive 2024! Until next time- Embrace your capacity to be excellent. Rise above average.
-Jason
Director, Gift Planning at Cornell University
11 个月I've always liked the RLE, and have done 5 that I recall, none recently. 3 of the 5 were in South Carolina. The other two in upstate, NY. What all had in common were the donors had either no kids, or the kids did not need mom and dad's home/vacation property. All 5 were done later in life (no surprise), and the charitable tax deduction was a useful outcome for all. One interesting note, the last RLE I did, the donor died 8 days after the completion of the gift. But then it took us 3+ years to unwind the gift and sell the property. It became a major headache. Some mistakes were made (like renting the property instead of waiting out a viable sale). I haven't had many donors interested in even discussing this type of gift recently. Why? The tax deduction is of less interest for older people with a limited income post retirement. But I have had donors including real estate in their estate plans which in some ways is better for us - let the executor do the work of listing and selling the property, we take the proceeds. And we never enter into the title, almost no risk here, important in a time of charities becoming more risk adverse. I don't mean to be pessimistic, but I haven't seen good outcomes recently.
President & Founder of iCLAT Solutions, LLC, Gornto Law, PLLC, & Effectual Giving, LLC
11 个月I like your article Jason, thanks for sharing. I also like the title and the picture - great visual - you better believe its worth getting into the weeds! Always nice to learn of fellow "weeds-dwelling professionals"! RLEs are certainly among the "way-too-overlooked-tools" at the bottom of our planning toolboxes. RLEs are VERY applicable to many donors, but almost never proposed. Again, thanks for the article.
The Frontline Fundraiser -- teacher, speaker, consultant on major gift planning
11 个月Another great read, Jason. The retained life estate is one of my favorite examples when I point out to gift planners the two components of success. One, of course, is learning how any particular gift strategy works. The other, too often overlooked, is how to identify a good candidate for the gift strategy. What can the gift planner do during intentional conversations to learn that the house or the farm might be a good giftable asset through a RLE? How will that gift planner explain to the possible donor, usually a layperson, how this works? Legal and technical knowledge absent context and purpose is merely academic.
Associate Director of Development at Colorado Mesa University
11 个月Thanks for sharing! Useful information.
Philanthropic estate planning. ?? Tenaciously connecting people, resources, and solutions.
11 个月Joy Knopp, I thought you might find this interesting.