Retained Life Estate

An individual may wish to donate property to ensure that it will be protected in its natural state, but desire to retain possession and use the property for his or her lifetime or perhaps the lifetimes of others so designated. Retained possession may also be for a fixed number of years.

To accomplish this goal, the individual may, with the consent of the recipient, donate the property to a charitable organization, yet retain an interest in it -- a "life estate." The interest given to the charitable organization is called a "remainder interest."

For income tax purposes, the deduction available for such a contribution is decreased by the value of the life estate retained by the donor, as determined by the actuarial tables published by the Internal Revenue Service. Reservation of more than one life estate may cause a substantial further reduction in the amount of the deductible remainder interest. In addition, the holder of the life interest continues to be responsible for all costs of upkeep, including real estate taxes, insurance and maintenance, during the period of the life interest.

A deduction for contributions of a remainder interest is permitted if the property is "qualified conservation property" or if the property is the donor's personal residence or farm.