Life estate with gift annuity example

Jack and Esther have given the concept of a life estate considerable thought. They have decided that some additional income could meet some of their retirement needs.

The calculation of a life estate for their home produced a figure called the present value of
the remainder interest - this would be the tax deduction if they only did a life estate - without
a gift annuity.


Ages 77, 77
FMV of home $350,000
Present value remainder $178,875

Two life gift annuity rate 6.2%
Annual two-life annuity $ 11,090
Tax-free income $7,364
Taxable income $3,726

Income tax deduction $69,160

Because the IRS allows married taxpayers to exclude up to $500,000 ($250,000 for single filers) of gains realized on the sale or exchange of a personal residence, they are able to enjoy more tax-free income from their gift annuity.

Minimum age for life estate/gift annuity combination is 75.

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