Charitable Gifts With Retained Life Estates Can Be Troublesome

In general, public policy favors charitable giving. Charitable gifts during life are generally eligible for an income tax deduction,1 and a federal gift tax deduction2 and charitable gifts passing at death of the donor are usually eligible for a federal estate tax deduction.3 In addition there is a special provision for transfers of a personal residence or a farm to a charitable organization with a unique opportunity for a life estate to precede the charitable bequest or devise.4 That opportunity does not exist for other types of property where no gift tax, estate tax or income tax deduction is allowed for the charitable gift if a non-charitable beneficiary precedes the charitable bequest or devise unless the transfer is in trust and meets the requirements to ne a charitable remainder annuity trust, unitrust or pooled income fund.5 However, clear as those provisions may seem, problems can arise especially with retained life estates preceding the charitable gift