Low Interest Rate Environment Charitable Giving Opportunity

By: Laurie Valentine-COO & Trust Counsel 


The current low interest rate environment has increased interest in charitable gift plans that use a factor tied to current interest rates to value the gift to charity. When interest rates are low, the value of the charitable portion of those plans is higher. One such plan is a gift of a remainder interest in real estate.

To give a remainder interest in real estate, you simply deed property to a charity while retaining for yourself the right to full use and enjoyment of the property for a term of years or the rest of your life. At the end of your retained interest, the property is immediately owned by the charity.

The income tax deduction for your gift is available in the year you deed the remainder interest to charity, not when your interest in the property ceases.

This type of gift plan allows you to take action now, but continue to have use of the property for whatever period works for your situation.

For example, Martha and John Smith, ages 58 and 60, own a primary residence and a vacation home in Kentucky. The vacation home has a current value of $50,000. Martha and John plan to sell both homes and move to Florida when John retires in 5 years.

The Smiths’ church is in a 5-year capital campaign. If they funded their gift to the capital campaign by deeding the vacation home to their church now, retaining the right to use it for the next 5 years, the value of their remainder interest gift to the church would be $44,050, if the interest rate factor used to value the charitable interest is 1.4% (the March 2012 factor).

Martha and John’s gift may provide over $11,000 of income tax savings, if they are in the 25% tax bracket and itemize deductions. They have 6 years to use the full $44,050 deduction amount.

At the end of the five years, their interest terminates and church will then own the vacation home outright. It can sell it as the capital campaign is coming to an end.

Real estate remainder interest gifts…a gift plan that provides income tax savings to the giver now and a significant gift to charity in the future.

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.