Estate Planning Tools That Pay Off Now

You don’t have to be rich (or even have a taxable estate) to make use of some advanced estate planning maneuvers. One estate-planning tool an older client may use is a "life estate" arrangement with a local charity. This allows the donor to transfer a partial interest in a personal residence, vacation home or farm to a charitable organization and still retain the right to live there through a specified lifetime. The advantage of such an agreement is that the donor does not give up cash, income or lifestyle but still receives a charitable income tax deduction.


Keep something while you’re giving it away.


So who might make use of such a life estate?

  • donors who want to benefit a charitable cause but who are unable to donate cash

  • donors without heirs or those who don’t plan to pass a family home or farm to heirs

  • donors who have a close relationship to a charity

  • donors who would like the nonprofit organization to have the property without restrictions or legal battles with uncooperative heirs in the future

What are the down sides to such gifts?

  • It is an irrevocable gift to charity. The asset is no longer available to convert to cash.

  • The property becomes hard to sell or lease because the charity owns a remainder interest.

  • The donor usually is responsible for paying maintenance, taxes and insurance.

  • If the donor must move to assisted care housing, what happens to the property?


A good case study of the technique involves Elizabeth Doe (72) who owns a retirement home. The house sits next to a local church she attends when visiting the area, and she has become active in the church group. Since her husband passed away three years ago, she makes less use of the residence since it takes too much effort to close up and reopen the house. It was a popular place for her family to gather during the winter holidays, but the $120,000 house is not used enough to fully justify the expense. Possessing sentimental value, she’s unwilling to give it up completely now. The church would like to acquire the house, but is unable to purchase the real estate outright.


It looks like the house will probably become more valuable, but her estate is modest. An outright bequest to the church will not solve planning problems. On the other hand, the church endowment committee has offered her a life estate in her residence if she passes the house to the organization at her death. In the meantime, she’s entitled to a large income tax deduction. The tax deductions would be available for her use over six years and will free up other income, and still allow her the right to continue using the house as she wishes during her lifetime. After Mrs. Doe passes away, the church acquires the property and may use it as needed without the outlay of additional funds. For some donors, this is as close as it gets to having your cake and eating it too.


Jeffery J. McKenna is a local attorney licensed in three states and serving clients in Utah, Nevada, and Arizona. He is a partner at the law firm of Barney, McKenna and Olmstead, with offices in St. George and Mesquite. He is a founding member of the Southern Utah Estate Planning Council. If you have questions or topics that you would like addressed in these Wednesday articles please email him at jmckenna@www.barney-mckenna.com or call 628-1711.