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Planned Giving
Life Estate
Rhea Jones, 75, lives in a beautiful home in Kailua. Rhea is an active philanthropist. In fact, she spends three days a week volunteering with local charities. While very wealthy and philanthropic, Rhea makes only modest yearly gifts. However, she intends to make a substantial bequest upon her death. Specifically, Rhea plans on distributing her entire estate to her children and grandchildren, except for her Kailua home. Rhea's will provides that her home passes to the UH Foundation upon her death. The home is worth $1.5 million.
At a recent estate planning presentation, Rhea discovered the benefits of a gift of a remainder interest in a personal residence. In particular, she liked the large income tax deduction and the home's avoidance of the probate process. Also, because the gift is irrevocable, the UH Foundation would recognize and honor Rhea for her generous gift as a Founder’s Club member. Of course, Rhea retains the right to live in her home for the rest of her life, which is her absolute requirement to any potential gift arrangement.
Rhea is very excited about this gift arrangement, but she has many questions. Before she commits to the gift plan, she wants to address several issues. First, how is the transfer of the home accomplished? Is a trust involved? Is a contract required?
Specifically, Rhea would deed the home to the UH Foundation, but reserve a life estate in the property. For simplicity, a quitclaim deed may be used. In the alternative, a warranty deed or similar deed may be used. After the deed transfer, the deed should be recorded. This process is very similar to any other transfer of property.
A charitable trust is not part of this gift plan. However, a contract is commonly an additional part of this gift plan. Under the common law of most states, Rhea, the life tenant, is obligated to maintain the home during her life. However, it is prudent to create a written agreement that clarifies the roles and responsibilities of both Rhea and the charity.
For more information on life estates, please email giftplanning@uhf.hawaii.edu or contact Lani Starkey at 808-956-8034. We are happy to provide you with a complimentary life estate illustration and proposal personalized for your unique situation and objectives.