Reserved Life Estate

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You can donate your land now, but continue to live on the land during your lifetime. This technique is called "donating a remainder interest and retaining a reserved life estate."

In other words, you reserve the right for yourself or any other persons you name to continue to live on the land or use it. When the named persons die or release their life interests, the full title and control of the land will be in the hands of the conservation organization or agency you have chosen.

Donations of this kind may be eligible for an income tax deduction at the time the gift is made. The deduction is based on the fair market value of the donated property, minus the expected value of the reserved life estate. Reserving lifetime use by more than one person can significantly reduce the possible income tax deduction.

The donor usually must continue to pay real estate taxes on the land retained for his or her family's use. The property value may be included in the gross estate for federal estate tax purposes.

So your immediate tax benefits may be less than if you gave the land now without restriction. On the other hand, if you chose to give the land through your will, you would gain no income tax benefits at all.

The agency or organization receiving the land might prefer a donation with reserved life estate or by bequest if the agency would like to own the property someday, but does not wish to accept the responsibilities of immediate ownership.

The reserved life estate can be a "happy medium" for all concerned.

For more information, contact your attorney and/or financial advisor.

While the Iowa Natural Heritage Foundation makes every effort to give you accurate information, you should also consult your trusted professionals for legal, financial, insurance, or estate planning advice. The INHF staff are not engaged in rendering legal, accounting, or other professional services.

Read on for an example of an Iowa family who chose to donate with a reserved life estate.

Ham Marsh, in Buchanan County, is one of the few remaining glacial marshes in Iowa. Wild rice and other endangered plant and animal species are found here, and migrating waterfowl use the area in the spring and fall.

The owners, John and Maxine Ham of Independence, were afraid someday the marsh might be drained and disappear like thousands of other acres of Iowa wetlands. "We wanted to keep it for the kids," Maxine explained. "When they were little, they played there, catching frogs and finding things for school. We didn't want all that to be lost."

The Hams chose to donate the area to the Iowa Natural Heritage Foundation with a reserved life estate because it allows them to keep and enjoy the marsh during their lifetimes, but ensures protection for the area in later years. "We wanted to give it to the Foundation, but we wanted to be able to use it while we're alive. The kids still come home and go camping there sometimes," Maxine said.

A landowner may donate property to a land holding agency with a reserved life estate. The landowner has the benefit of knowing the gift has been accepted by a recipient suitable to him or her, and can enjoy continued use of all or part of the property during his or her lifetime. The reserved life estate may also allow immediate family members to use the land through-out the family members' lifetime.

The donor usually must pay real estate taxes on that portion of the land retained for his or her family's use. A transfer of property with a reserved life estate can result in a value of the property being included in the gross estate for federal estate tax purposes.

In terms of possible income tax benefits, the value of the gift can qualify as a charitable deduction. The value of the gift cannot include the value of the life estate, as determined from the Internal Revenue Service's actuarial tables. The reservation of more than one life estate can significantly reduce the possible income tax deduction.

The regulations that govern the amount that can be taken as charitable deduction each year are the same as those which apply to outright donations and conservation easements. From the recipient's point of view, donation by bequest or with reserved life estate may be preferable if the agency would like to own the property someday, but does not wish to accept the responsibilities of immediate ownership.

 Please order our free publication Landowner's Options or email Anita O'Gara, Director of Development or call her toll free at 1-800-475-1846, if you are interested in any of these options or would like more information.