GIFTS OF RESIDUAL INTERESTS

Living in your principal residence or enjoying property such as a cottage can be all the more satisfying if you know that when you no longer need your real estate it can become your gift to the Anglican Church of Canada for its mission, ministry and program—through your parish, the Diocese of Edmonton, General Synod, the Anglican Foundation of Canada, The Primate’s World Relief and Development Fund, the Anglican Fund for Healing and Reconciliation, or a theological college.

Introduction

It is like having your cake and eating it, too! You have the satisfaction of making a major gift to the Diocese of Edmonton now and receiving an immediate tax benefit, yet you continue to use and enjoy the gifted property for the rest of your life!

It is known as a “gift of residual interest” with retained life use and usually involves your principal residence or other personal use real estate, such as a cottage. In making such a gift, you transfer the property irrevocably to the Diocese of Edmonton but retain its lifetime use by you and your spouse.

When the transfer is made, you will receive a donation receipt for the present value of the “residual interest”—the value, in today’s dollars, of the property the Church will receive at your death. This is calculated on the basis of the property’s appraised value, your age, and a discount rate.

Giving Your Principal Residence

Elise, age 72, owns a house valued at $300,000. She wants to continue living in it for many years to come but would like the Diocese of Edmonton to have it at the end of her life. She decides to give the home to the Diocese now, retaining a life interest for herself. She receives a donation receipt for $128,131 which, with a 50 percent combined tax credit, will reduce her income taxes by $64,066 over the next five years. (The portion of the donation receipt that she may claim in any year is limited to 75 percent of her income, but she has the gift year and five additional years to use the full amount.)

Because Elise’s house is her principal residence, she realizes no taxable gain at the time of the transfer, no matter how much its value has increased. During her continued occupancy, she will be responsible for maintenance and such other expenses as are specified in her gift agreement with the Diocese. If it becomes necessary for her to give up the house sometime before her death, she has several options. She may rent the house and retain the rental income, give her life interest to the Diocese and receive an additional donation receipt, or, by agreement with the Diocese, sell the house and receive a share of the proceeds based on the value of her life interest.

Giving Other Types of Real Estate

It is easy to see how a residual interest in a personal residence can be an appropriate gift, but other property you own and use may also be a likely candidate. In this case, you will be taxed on 50 percent of the capital gain attributable to the residual interest, but the tax savings from the donation receipt will always more than offset the tax on the gain.

Harvey, age 73, has a cottage on a lake a few hours from his home in Edmonton. He bought the cottage many years ago for $40,000, and it is now worth $100,000. He is reluctant to sell it, both because he still uses it frequently and because the sale would result in a taxable gain of $30,000 (50 percent of $60,000). By transferring it to the Diocese of Edmonton with a retained life interest, only 50 percent of the gain attributable to the residual interest will be taxed. In Harvey’s case, the $53,608 donation receipt he receives for the overall value of the residual interest will more than offset the taxable gain of $16,082.

When you give property that has appreciated in value, the amount of the donation receipt creditable in any one year is 100 percent of the taxable gain in the gift, plus 75 percent of your other income. This assures that you will always realize net tax savings, no matter how much the property has appreciated.

Note: With real estate held solely for investment purposes, it generally makes more sense to contribute the residual interest by means of a Charitable Remainder Trust.

If you would like more information, in confidence and without obligation, please complete the Request for Planned Giving Information form.

The information on this webpage does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. The Planned Giving Office encourages you to seek professional legal, estate planning and financial advice before deciding on a course of action. The examples given above reflect rates at the time of writing and are subject to change.