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Livin’ In The House We’ve Given

By Jackie Jacobs

Shirley and Bill are generous, yet for years they thought about doing something extraordinary. Acting on the advice of their attorney, they took that step ten years ago by setting up a provision in their revocable living trust to give their house to their favorite charity.

This was a valuable and significant deferred gift, yet it didn’t immediately remove anything of financial value from their net worth or lifetime holdings.   It gave them peace of mind to know that because it wasn’t a completed gift, if their circumstances changed, they could amend the trust and still fall back on the value of their home, if necessary.

Late last year, Shirley’s brother left her a substantial inheritance, more than twice the value of their home. Also, Bill reports he has become “a pretty good stock picker” in his retirement, discovering that his active management of their investments has produced “twice as many winners than losers.”

Meeting with their attorney to update their trust, he suggested that they think about taking advantage of the current tax code by giving the house to charity now and continuing to live in it. He explained how it works:

They could deed their personal residence to the charity using a retained life estate agreement. That agreement reserves the right for Shirley and Bill to use the property for the rest of their lives, called a life tenancy. Shirley and Bill would still be responsible for maintenance and repairs, to maintain insurance coverage, and pay property taxes. When the last life tenant passes away, the charity takes possession to finalize the gift and then can sell or use the house as it wishes.

The attorney explained that the process was straight-forward. They would get an appraisal on the property to determine its current market value. Their ages, joint life expectancy, and other factors are considered to determine the present value of the remainder interest given to the charity. This amount is the value of the gift that Shirley and Bill can claim as an income tax charitable deduction.

The attorney pointed out that their timing was excellent, as the deduction calculation is very favorable right now. Statistically speaking, even though they are 80 years old and could anticipate living in the house for more than 12 years, the deduction worked out to be a significant portion of the value of the house. For them, it meant a large income tax refund for this year and probably at least two more years.

Jackie Jacobs is the Chief Executive Office of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.

Article appears as originally published in the Ohio Jewish Chronicle, Thursday February 5, 2015.

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