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FALL 2009
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Do you have clients whose children have "flown the coop?" Are they wondering what to do with their empty nests and how to manage the potentially large capital gains tax due when they sell?
Personal and vacation residences often represent a major component of your clients' estates. As much as 30% of America's wealth is in the form of real estate. While affluent donors may be unique in their ability to give real estate during their lifetime, the average citizen may be able to make a planned gift of real estate.
Many of your clients aren't planning to move or sell their vacation homes, preferring to maintain it for their children. But, while their children may be interested in inheriting the value of the home, they are likely not interested in the property itself. Most often, residences and vacation homes are sold in the normal course of settling an estate.
For clients such as these, the property may be an ideal asset for a charitable gift of a remainder interest with a retained life estate.
Gifts of remainder interests in homes can be especially attractive in today's environment. The value of the retained interest to the donor is calculated based on the adjusted applicable federal mid-term rate (AFMR) that has been at historic lows in recent months (2.76% in July, 2.80% in August, 2.87% in September). Coupled with current depressed prices for residential property, the low discount rate affords clients a way to transfer significant assets out of their estate and fulfill their charitable goals.
Gifts of a remainder interest in a personal residence can be measured by the life of one or more individuals, by a fixed term of years, or a combination of the two. Often referred to as "life estate agreements," they are typically established to operate for the lives of the residents of the contributed property.
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Life estate agreements are ideal planning vehicles for clients who want to make a gift of real property to charity - yet want to continue enjoying the property while receiving the benefit of a potentially significant charitable income tax deduction, as well as estate tax savings on appreciating property. And a gift of a vacation home can often turn a financial or logistical liability into a tax savings.
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Call us.
For more information or to have a confidential discussion about how a gift of real estate could benefit your client(s), contact Donna Roseman David, senior gift planning officer, at 860-548-1888 x1042 or drosemanddavid@hfpg.org.
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How it works:
In giving a remainder interest, your client simply deeds the property to the Hartford Foundation for Public Giving, while retaining the right to use the property for a specified period of time, usually their lifetime. At the end of the specified time, the property is owned by the Hartford Foundation. During the period of the retained interest, while your client is still enjoying use of the property, they continue to be responsible for all maintenance, taxes, repairs, and other expenses. These responsibilities are spelled out in a "retained life estate agreement" entered into at the time of the gift. (Details of this agreement can be found on the Foundation's website at www.hfpg.org/givingadvice.) And, because they have made a charitable donation, your client is entitled to a current income tax deduction for the actuarial present value of the remainder interest.
Gifts of remainder interest require a qualified appraisal. All contributions of real estate need to be cleared for any environmental issues and are subject to review by the Foundation's gift acceptance committee.
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 In 2005, an anonymous donor made a wonderful gift to the Hartford Foundation - an undivided one-half interest in a property, subject to a life estate.
The donor, a longtime resident of the Greater Hartford area, owned an historic home on the coast of Maine, which she decided to give as an act of charity. With help from her attorney, Kevin McCann of Hinckley, Allen & Snyder LLC, she found this solution, in which she retained the right to use the house for the remainder of her life.
"This was the perfect solution for this client - it helped with her estate planning, gave her a current income tax deduction, and best of all, ensures that her legacy will continue long after she's gone," says Attorney McCann.
After her death, the Foundation will sell its interest in the house and use the proceeds to fund a perpetual charitable legacy in her name. In this way, she received a current tax benefit for the gift and was also able to provide for a fund that, in the future, will support historic preservation and environmental efforts, as well as nonprofit organizations in specific towns she named.
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Article of Interest
Getting Clients To Focus On Philanthropic Goals...from Forbes.com
Thinking strategically about philanthropy helps wealthy clients see the big picture and forge stronger bonds with their adviser... read more >
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10 Columbus Boulevard, 8th Floor · Hartford, CT 06106
860-548-1888 · www.hfpg.org
Giving Advice is published periodically by Hartford Foundation for Public Giving, the community foundation for the 29-town Greater Hartford region. Hartford Foundation is devoted to building successful partnerships with professional advisers, donors and nonprofits to enhance the quality of life for people in the community.
To access the Planned Giving Design Center, a free, comprehensive, online resource for professional advisors, visit www.hfpg.org/pgdc. |
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