Do you own your personal residence or farm (with no debt) and need extra income? Maybe we can help.
The USD Life Estate/Gift Annuity (LEGA) Program has given many people who own their own home a new way to improve their lifestyle and at the same time meet their philanthropic goals. Here’s how it works:
- You deed your home, farm, or vacation home to the University of San Diego but retain a “life estate.” You retain full use, possession and enjoyment of the property for the rest of your life. You will still be responsible for maintaining and insuring the property and for paying all real property taxes and homeowner dues. At death, the property passes to the university. Until then, life remains the same, except:
- In exchange for deeding the home to USD, we enter into an agreement to pay you a gift annuity income for life. The amount of the annuity payment is based upon the appraised value of the home, the number of people (annuitants) receiving the annuity (1 or 2), the ages of the annuitants, and value of your right to use the property for life.
- For tax purposes, the payments you receive from USD are treated partly as ordinary income, partly as capital gain income, and partly as tax-free income depending on how much the home’s value has increased since you purchased it.
- You will also receive a substantial charitable deduction because your LEGA is a gift to the University of San Diego.
Ken, age 85, and his wife, Mary, also 85, have owned their home since 1973 when they purchased it for $75,000. The home has a current appraised value of $800,000. They plan on living in their home for the rest of their lives but would like to increase their income. They decide to enter into a Life Estate/Gift Annuity with USD.
Their right to use the property for life is valued at $287,500. The balance of the appraised value, after reducing it by the value of the right to use the property is $512,500. The annuity payment is based upon this amount. At their ages, Ken and Mary will have an annuity rate of 7.9%.
Ken and Mary will be able to live in their home and the University of San Diego will pay them $40,486 each year for the rest of their lives and the life of the survivor. About 72% of the income they receive will be tax-free until 2014. The income is fixed and guaranteed by the university. They will also receive a charitable deduction of $234,000. Only when the survivor passes away will USD take possession of the home.
If you later decide that you no longer want to live in your home, you have several options. You may move out of the home and:
- Exchange the value of your right to use the property to the university, receive another charitable deduction and continue to receive the original annuity
- Receive a second gift annuity in exchange for the value of your right to use the property and receive another charitable deduction
- Lease the home and receive all the rental income, thus receiving both rent proceeds and the original USD annuity
