 |
In uncertain economic times, with low dividend and interest
yields and an unstable stock market, real estate is one class of assets that has held its value.
There are many ways to structure a gift of real property
for a charitable organization. Whether your objective is to dispose of property that you no
longer want or need, downsize from a primary residence, live in your house and achieve an income
tax deduction, or even receive a stream of income in exchange for the property, chances are
there is an arrangement that might work for you. Read on for illustrations of gifts using real
property.
 An Outright Gift
A Gift at a Bargain Price
A Gift Subject to a Life Estate
A Gift with an Income Stream
Having Your Cake and Eating it Too
AN OUTRIGHT GIFT
You may deed Smith your property with no strings attached, gain an income tax deduction for the appraised value of the home, and designate how you would like your contribution to be used to further Smith’s mission.
Case Study
When Charlotte ’47 decided she could no longer use her vacation home, and her children were not interested in inheriting it, she decided to give it to Smith in support of scholarships. She discussed the gift with Smith, obtained an appraisal for the property, and was able to claim an immediate income tax deduction for the appraised value of her home, avoiding any capital gains tax. Smith sold the property and used the proceeds to establish a scholarship fund in Charlotte’s name. |
A GIFT AT A BARGAIN PRICE
If you’d like to make a gift to charity but you need some of the proceeds from the sale of your home, you can agree to sell Smith your home at a bargain price. This is called a bargain sale.
Case Study
Mary ’64 was moving to an independent living facility and needed some of the principal from her home for her new lifetime lease. Her home was valued at $500,000, and she needed $200,000 for her new apartment. Mary sold the home to Smith for a bargain price of $200,000 and claimed a charitable income tax deduction for $300,000.
Mary was liable for the capital gains tax incurred on the “sale portion” of the home ($200,000 or 40% of the actual capital gain) although it falls below the $250,000 individual’s exemption so there was no capital gains tax due. |
A GIFT SUBJECT TO A LIFE ESTATE
It’s possible to continue to live in your home during your lifetime and irrevocably deed it to charity at your death. The gift arrangement is called a retained life estate. A donor can claim a federal income tax deduction for a portion of the value of the property, and remains responsible for all the taxes, maintenance and insurance while she is alive. If at any time the donor decides to move from the property, the gift can be accelerated and an additional income tax deduction may be taken.
Case Study
When Julia Child ’34 announced in July 2001 that she would leave Cambridge, Massachusetts after 40 years and move back to her native California, it was international news. But the fact that her Cambridge home would be a gift to Smith College was not news to Smith.
A decade earlier Julia entered into an agreement with Smith, formally donating the house on Irving Street to the College but keeping the right to live in it for her lifetime – a “retained life estate.” In the year of that agreement Julia was eligible to claim a charitable income tax deduction for a portion of the value of her home. She continued to live in her house as usual, and it continued to be the hub for her busy life. But for the last ten years Julia has had the satisfaction of knowing that the comfortable house that hosted “In Julia’s Kitchen with Master Chefs” would ultimately benefit generations of Smith students.
With her decision to move west, Julia accelerated her gift to Smith, and was entitled to an additional charitable income tax deduction. Smith has sold the house, and proceeds were used toward construction of Smith’s new Campus Center. |
A GIFT WITH AN INCOME STREAM
If you don’t mind moving from your home, and don’t need the proceeds to purchase another residence, but you do want to secure an income stream, here are two gift arrangements that might meet your objectives.
Case Studies
Dale ‘60 and her partner are newly retired and planning to play a lot of golf at their new Hilton Head condo. Dale downsized from her large New England home that made up a large percentage of her estate, and does not wish to retain the property.
Here’s how Dale turned her home into a meaningful charitable gift and a stream of income:
-
-
Trustee of the trust sold the house and reinvested in a diverse portfolio of liquid assets
-
Dale claimed a charitable income tax deduction for a portion of the home’s value
-
After the property was sold (in the trust), Dale and
her partner received lifetime income from the trust at a 5% rate
After the deaths of both Dale and her partner, the trust principal will benefit Smith College in an area of Dale’s choice.
Katherine ’53 was moving to a retirement community and wished to use her home as a charitable gift. Her objective was to secure an income stream for herself. Since the house was in good condition and in a highly marketable area, Smith accepted the gift in return for an income stream through a charitable gift annuity.
Smith agreed to pay Katherine a fixed sum for her lifetime, based upon her age. Katherine claimed an immediate charitable income tax deduction for a portion of the value of her home. Smith sold the home in order to invest the proceeds, and at Katherine’s death the remaining principal associated with her gift will be used in support of the libraries at Smith.
|
HAVING YOUR CAKE AND EATING IT TOO
If you wish to obtain an income stream but you can’t afford to give up the entire principal of your house OR you don’t want to move from your house, there is one additional gift that Smith will consider with you. It is a combination of a retained life estate and a charitable gift annuity. This combination gift arrangement would allow you to remain in your home and receive fixed annuity payments for your lifetime.
Case Study
Marjorie ’50 lived in a well-kept condominium and was seeking to augment the income she received from her small savings. She had no children and knew that she could use her condominium as a charitable gift at her death.
She consulted with Smith and, after careful consideration by Smith and Marjorie, she irrevocably assigned the condo to Smith at her death, and the college offered her a fixed rate annuity based on a portion of the value of her condominium. |
Smith’s Office of Planned Gifts and Bequests is happy to discuss any of the options presented here in more detail as they apply to your own financial situation. Please feel free to call us for a personalized conversation and illustration.
|
| I
Want to Create
Income
I Want to Use
These Assets
Cash
Securities & Mutual
Funds
Real
Estate
Life
Insurance
Retirement
Funds
Tangible
Personal
Property
Existing
Life-income
Gift
I Want to Leave
a Bequest
Tax Facts
Planned
Giving
Calculator
The Grécourt
Society
Glossary of
Terms
Contact Planned
Giving
|
|
