• T he R etained Life Estate Frequently Asked Questions Contact Us ■ Phone: 626-395-2927 What if I later decide to move out of the residence and sell it, or another life tenant does? The gift of the property is irrevocable, but the life tenant and Caltech can agree to sell the residence jointly and divide the net proceeds. After the property is sold, the proceeds are split in accordance with the IRS actuarial values for life and remainder interests on the date of the sale. ■ Does this type of gift apply to real property other than my personal residence? Federal tax regulations limit charitable gifts of real property with a retained life estate to a personal residence or a farm. The personal residence need not be the donor’s principal residence. For example, a vacation home would qualify. ■ What if there is currently a mortgage on the property? Providing the lender consents, the existence of a mortgage does not prevent such a gift from being made. The donor’s tax deduction will be reduced and he or she may have to recognize some income as a result of the gift. The donor will remain liable for the mortgage. The Office of Gift Planning can provide exact calculations based on your particular circumstances. E-mail: giftplanning@caltech.edu T h e R e ta i n e d L i f e Es ta t e Retain the use of your home while making a gift that benefits Caltech. Mail: Office of Gift Planning Mail Code 5-32 1200 E. California Boulevard Pasadena, CA 91125 On the Web: http://giving.caltech.edu/gp/ Of f i c e o f Gi f t P l an n i n g This brochure is intended for educational purposes only and is not offered and should not be taken as legal, tax or other professional advice. Always consult an attorney, accountant or other professional advisor before making any material decisions based on any data presented herein. To ensure compliance with certain IRS requirements, we disclose to you that information contained in this brochure is not intended or written to be used, and may not be used, for the purpose of avoiding tax-related penalties. C al if or n ia I ns t i tu t e o f Tec hn o lo g y T he R etained Life Estate A lumni friends of Caltech can gift their home, vacation property, or farm, while continuing their current living arrangements. How It Works You make an irrevocable gift of your residence, vacation home, or farm and reserve what is called a “life estate” for yourself, your spouse, and/or any others you wish to include as “life tenants.” You (or others you designate) continue to occupy the property for the rest of your life. At the death of the last surviving life tenant, Caltech takes possession of the property. Benefits Special Techniques ■ You receive an immediate income tax deduction. ■ The property is not included in the value of your total estate for estate tax purposes. ■ Your heirs avoid the probate process and related expenses. As an alternative to the retained life estate, you can use another gift planning tool to address your personal goals and maximize a gift of real property. You can donate your real estate to Caltech to fund a charitable remainder unitrust (CRUT) that pays you a lifetime income. ■ You retain use of the property for your life while you transfer ownership and take an income-tax deduction today. ■ You have the personal satisfaction of creating a legacy at Caltech. The Basics ■ ■ ■ ■ ■ You and Caltech agree to create a retained life estate. The Institute prepares a deed transferring ownership to Caltech and an agreement setting forth the responsibilities of the life tenants and the Institute during the period of the retained life estate. You obtain an appraisal for the property in order to support the charitable income-tax deduction. Once the property is deeded to Caltech, the life tenants retain the right to live in the residence for their lifetimes. Caltech provides you with a calculation of your tax deduction based on the appraised value and the IRS actuarial formula, along with a formal gift receipt to substantiate your deduction. The costs of insurance, upkeep, repairs, and improvements, as well as payments of all property taxes, are the responsibility of the life tenants. Example Donors irrevocably transfer their home, valued at $500,000, to Caltech. They receive an immediate charitable income-tax deduction in the amount of $276,200. The donors continue to live in the property while maintaining responsibility for all taxes, upkeep, and insurance. When the life estate ends, Caltech takes possession of the property and sells it to support the designated program of the donor’s choice. Calculations are based on a hypothetical gift made in January 2012. Please contact the Office of Gift Planning for a personalized calculation. With this method you can generate or replace income from real estate and still avoid paying immediate capital gains tax on the sale of the property.