1. Why Do Life Estate Gifts Have Great Potential?
Community Foundation of the Ozarks  Wednesday, November 29
Why Do Life Estate Gifts Have Great Potential?
Douglas R. Nickell

2. May be largest assets in individual donor’s portfolio
May be only asset available to fund a charitable gift.

3. Different kinds of real estate may be the subject of gifts
Land – developed or undeveloped, farm property
Rental property
Personal residence
Apartments
Motels/hotels
Business/commercial property
Vacation homes/condo

4. Different Methods of Making Real Estate Gifts

5. Outright
Immediate use or sale with sale proceeds used by charity

6. Bargain Sale
Sale to charity for less than full FMV with payments over time

7. Charitable Remainder Trust
Provides variable income based on percentage of annual value of trust assets
For donor’s lifetime or up to 20-year term

8. Gift Annuity Fixed payments for life of one or two individuals
Amount of payment based on age of income beneficiary at time of gift

9. Life Estate Agreement Focus of Our Discussion Today
Gift of remainder interest in
Residence
Vacation home
Farm
Life estate agreement
Ideal planning vehicle for
Individuals who desire to make a testamentary gift of real estate to charity
While continuing to enjoy use of the property for life and enjoying a current and potentially substantial charitable income tax deduction

10. How a Life Estate Works
Deed remainder interest in property to charity now
Retain a life estate in the property
Donor pays maintenance, taxes and other current costs of ownership
Donor gets an income tax deduction now for current value of remainder interest
Charity receives proceeds from sale of property upon death of the donor

11. Life Estate Agreements are Limited
Gift of a remainder interest in a personal residence
Farm property
Vacation home is OK

12. Gifts of Remainder Interest Can Be Measured
Life of one or more individuals
A fixed term of years
A combination of the two
Most common to operate for the life or lives of the residents of the contributed property

13. Charitable Deduction Equals
Net present value of the charitable remainder interest based on
FMV of the property on date of transfer as established by independent appraisal
FMV of depreciable improvements
Estimated useful life of the improvements
Salvage value of the improvements
Measuring term of the agreement
Applicable Federal Midterm Rate in effect for the period of transfer

14. Sample Present Value Computation

15. Single life Mrs. Donor, age 70 Transfer remainder interest on 11/1/06
FMV = $250,000
Measured by Mrs. Donor’s life
Depreciable portion = $125,000
Estimated useful life of 45 years
Salvage value of depreciable portion = $12,500
Applicable Federal Midterm Rate for 11/06 is 5.60%
Charitable Deduction for Remainder Interest — $111,593.25

16. Two lives Mr. and Mrs. Donor, age 75 and 70
Transfer remainder interest on 11/1/06
FMV = $250,000
Measured by longest life expectancy
Depreciable portion = $125,000
Estimated useful life of 45 years
Salvage value of depreciable portion = $12,500
Applicable Federal Midterm Rate for 11/06 is 5.60%
Charitable Deduction for Remainder Interest — $91,224.38

17. Term of Years Mrs. Donor, age 70 Term of twenty years
Transfer remainder interest on 11/1/06
FMV = $250,000
Depreciable portion = $125,000
Estimated useful life of 45 years
Salvage value of depreciable portion = $12,500
Applicable Federal Midterm Rate for 11/06 is 5.60%
Charitable Deduction for Remainder Interest — $ 67,259.20

18. Donor Must File Gift Tax Return
Even if no tax is due

19. Benefits to Donor
Charitable income tax deduction for net present value of the charitable remainder interest
Flexibility
Transfer avoids probate at death
Removal of property from estate for estate tax
Recognition by charity currently for contribution

20. Benefits to Charity Irrevocable transfer
Chance to recognize donors now
Flexibility it offers to donors

21. OCREF Ozarks Charitable Real Estate Foundation
Supporting organization owned by CFO
Designed to hold real estate gifts
7 managers with experience in real estate adopted formal acceptance guidelines

22. Requirements Irrevocable transfer Written Life Estate Agreement
Qualified appraisal
Title insurance commitment
Title insurance policy
Property inspection and analysis
Environmental assessment

23. Questions? ? ? ? ? ? ?