The Montana Land Reliance has been in the business of professionally and capably handling complex real estate transactions for nearly forty years, and we are pleased to extend that expertise into the gift planning realm. You can leave a lasting legacy of conservation through your property in many more ways than donating a conservation easement. Real property is an attractive option for combining charitable and financial planning, due to the wealth of planning options available, and the likelihood that you will be able to benefit both from an income tax deduction and from avoidance of capital gains tax. MLR will work with you and your professional advisors to ensure you are able to realize the financial, charitable and conservation vision you have for your property.
One option that costs you nothing during your lifetime, while still entitling you to tax savings while supporting MLR, is to leave your property to MLR while retaining the right to use and occupy the property during your lifetime, or the lifetime of another beneficiary such as your spouse. This is referred to as the gift of a remainder interest, with the retention of a life estate. You will get an immediate tax deduction that is typically a substantial portion of the overall value of the real property.
During your lifetime, you will still pay property taxes, maintain insurance, and keep the property in good condition. You’ll also be entitled to any income from the property. If at some point in the future you are no longer interested in the property, you can donate your life estate back to MLR and vest us with full title, entitling you to an additional tax deduction and allowing us to put the proceeds to immediate use. You and MLR can also agree to jointly sell the property.
A concept familiar to many conservation easement donors is the “bargain sale,” whereby a charity such as MLR agrees to pay an amount that is less than fair market value for an asset. The donor is entitled to deduct the difference in value as a charitable contribution. Many donors are interested in a “zero tax” sale of property, which enables the donor to sell property without paying any tax on the sale by offsetting the gain with a charitable deduction pursuant to a bargain sale.
Gifting property outright, in whole or in part
Of course, most generous type of gift involving real estate is to gift the property outright to MLR, either during life or as part of your estate planning process. And, unsurprisingly, an outright gift will produce the largest possible tax deduction.
A less well known fact is that it is often possible to donate a fraction of your ownership interest, when you are unable or uninterested in parting with the full value of the real estate asset. For example, it may be possible to donate a one-third interest in a parcel of real estate to MLR, and to receive a tax deduction for a charitable contribution as a result. This can be an attractive option for conservation-minded individuals who know their heirs are not interested in continuing to own the real estate, but who do not want to deprive those heirs of the bulk of the value of the asset.
This gift planning option gives rise to another version of the “zero tax” sale. By deeding a fraction of your undivided interest in your property over to MLR and then jointly selling the property to a third party, you can structure the transaction so that you obtain the maximum possible tax-free amount, by offsetting gain on the sale through a deduction for the contribution of the partial interest to MLR.
Using real estate to fund gift annuities or charitable trusts
Interests in real estate are often great assets to use to fund other gift types, such as charitable gift annuities and charitable trusts, where you or a named beneficiary are entitled to receive an income stream in return for your donation. Doing so can also relieve you of responsibility for the time-consuming process of listing and selling your property, while at the same time ensuring a lasting legacy for conservation.
If you are considering a gift to MLR involving real estate, it is important to begin the dialogue with our gift planning staff as early in the process as possible. We will need to determine that we can accept the gift under our gift acceptance policies, perform due diligence, and ensure that we understand and can live up to your expectations for the property. Special considerations may be raised if the property has significant debt or environmental contamination issues.