By Angela Baker, JD Realtor
Seniors Real Estate Specialist
As you contemplate the gifts you will make this year, consider the benefits of gifting appreciated real estate.
Whether or not your beneficiary is a charity, gifting real estate outright or in trust can transform lives and communities and create a legacy that extends beyond your lifetime.
The Gift of Real Estate - Things to Consider
While a gift to a non-charitable beneficiary, such as a family member or friend, can provide them with financial security or help support their goals, it’s important to consider the financial and practical implications for you and your beneficiary. You’ll want to ensure that your loved ones are willing and able to take on any responsibilities, such as maintenance, insurance, and taxes, associated with the gifted property and establish a contingency plan in case your beneficiary predeceases you or is unable to assume ownership of the property.
On the other hand, a gift to charity allows you to support causes you are passionate about and see your gift put to impactful use. Be sure to confirm that your charity is willing and able to accept a gift of real estate.
How to Give Real Estate - Outright vs Trust
When you make an outright gift, the ownership and control transfer immediately, allowing your beneficiary to use or sell the property as they wish. The responsibility for the management, maintenance, and associated costs is no longer yours. An outright gift is generally simpler, involves fewer administrative complexities, and can provide immediate tax benefits based on the property’s fair market value at the time of the gift.
Another option is to make a gift in trust. This can be accomplished in multiple ways and provides you with flexibility and control over the property while still benefiting your charitable or non-charitable beneficiaries. A trust can also provide several tax benefits. Trusts are typically more complex to establish and have costs associated with ongoing administration and reporting. Your Trustee’s role is significant. So, ensure they understand their obligations and are willing and able to serve.
For non-charitable purposes, a trust can help ensure that the property is managed and distributed according to your wishes. Whether you establish a revocable or irrevocable trust will depend, in large part, on your circumstances and desired level of control. If privacy and the avoidance of probate are important to you, a trust, unlike a will, will offer both.
A charitable gift in trust, unlike an outright gift, allows you to retain some control during your lifetime or for a specified period. You can specify how the property should be managed and used and when it should be distributed to the charity. A charitable trust can also provide income, gift, capital gain, and estate tax benefits. A charitable remainder trust, for example, can provide an immediate income tax deduction for a percentage of the property’s fair market value at the time of the gift. If and when the trust sells the appreciated property, capital gains taxes are generally avoided since the trust is tax-exempt.
Creating a Legacy Through Real Estate
Gifting real estate outright or in trust to charitable or non-charitable beneficiaries presents a powerful opportunity to maximize the many benefits and create a meaningful legacy for you and your beneficiaries. The decision between an outright donation or establishing a trust will depend on your specific circumstances, goals, and desired level of control over the property. Be sure to consult with an estate planning attorney and other professionals to understand the options, complexities, tax implications, and legal requirements and to ensure your wishes are properly documented and executed.
This post should not be misconstrued as legal, financial, or tax advice but is intended for Educational Purposes Only. Contact your advisor(s) for advice on your specific circumstances.