When you donate your land with a reserved life estate, you firmly commit to the gift but can continue to use the property during your lifetime. This option, also called a “life tenancy,” is a middle ground between a bequest and an outright land donation that can feel like the best of both worlds.
How does this work?
- You donate your land to a conservation agency or organization, with a reservation of life use that allows you to continue to use all or part of the property — either for a certain number of years or during the rest of your lifetime. This life estate can make it possible for you to continue to live on the land, enjoy recreation there, and farm the cropland for income.
- Your spouse and/or other immediate family member(s) that you stipulate as “life tenants” can also enjoy continued use. However, extending this right to additional people — especially if they are significantly younger — decreases your potential income tax benefits.
- You retain typical owner responsibilities and costs, such as building maintenance, land management, insurance and property taxes.
- You can’t make management decisions that would significantly reduce the value of the gift. For example, you can’t log the land or stop maintaining the buildings (unless permitted in the original agreement).
Advantages
- Regularity. For all appearances, it’s as if you continue to own your land.
- Certainty. The conservation entity you’ve chosen as a future owner has accepted your land donation. It’s a “done deal.”
- Tax benefits are greater than those for a bequest of land (though not as large as a full donation without a life estate).
- Income. If your land produces income, you and your life tenants will continue to receive it.
- Flexibility. If you or your life tenants decide that use of the land is no longer important to you, you can donate the remainder of your life estate. This is a pathway to release the responsibilities of land ownership later in life. This can also enable you to watch your conservation vision for the land unfold during your lifetime, if you wish.
Financial effects
- You can’t reverse a reserved life estate gift. In contrast, you can change a bequest during your lifetime. For this reason, the donation with reserved life estate may offer tax benefits during your lifetime while a bequest does not.
- You’ll continue to pay real estate taxes on the land retained for your family’s use.
- Your gift may qualify for income tax deductions. Your deduction is based on a formula using IRS actuarial tables and current interest rates. If the life tenant is older, the tax benefits will be greater than if the life tenant is younger.
Other considerations
Some conservation groups may prefer to avoid the complexity and delays associated with a land donation with reserved life estate. Others may actually prefer it to an outright donation. It’s an especially appealing option for groups that would someday like to own the property but do not wish to accept the costs and responsibilities of immediate ownership.