Can you donate the residual interest of a principal residence to charity?  Absolutely!  The question, however, is not can it be done, but should it be done.  In most cases, the answer is no – especially for the charity.

Structuring Options

Let me address the structuring options first.  It is possible to donate a home to charity with an intervening life (or term) interest.  This means one or more persons live in the house for the remainder of their lives and then when they die the house passes to a charity.

This can be structured using a charitable remainder trust or a gift of equitable interest.

Charitable Remainder Trust 

The charitable remainder trust – either lifetime or testamentary – is an irrevocable trust with a charity as a remainder beneficiary.  The trust holds the house.  The life beneficiary lives in the house and the charity gets the house after the life beneficiary is dead or the trust term ends.  A tax receipt may be issued at the time of settlement for the present value of the remainder interest, which will require an actuary to determine.

Gift of Equitable Interest 

A gift of equitable interest can be used with real estate because ownership can be divided on title.  A gift of equitable interest irrevocably gives the charity ownership of the property after a tenant occupies or uses it for life.  When the occupant dies, or relinquishes his/her right, the title of the property passes 100% to the charity.  The tax receipt is issued on the same basis as the charitable remainder trust.

Challenges

Despite structuring options, donating a residual interest of a home has some challenges.  They include:

1. Repairs and expenses. Who is responsible for the upkeep and operating costs of the home?  Usually the life tenant.  These terms are built into the trust deed or gift agreement.  Alternately, it is possible for a trust to have other assets and for the trustee to be responsible for upkeep. However, upkeep create liabilities and messiness for the charity.
2. Life tenant moves out. What happens if the life tenant wants to move out?  For example, the house becomes too much and they need to move to assisted living.  The deed or agreement needs to address the issue.  A trust can sell the house and fund an annual income for the life tenant, but a gift of equitable interest cannot.
3. Capital appreciation. Houses in most Canadian communities has seen significant appreciation in the last 20 years.  An upfront tax receipt based on the present value of the remainder interest is unlikely to capture that value for the donor or estate.
4. It’s someone’s home. Whether the life tenant is a spouse, child, relative or friend, there is often a strong connection to the property.  The donor has an expectation the life tenant will be taken care of.  If something goes wrong, the charity is wading into significant legal costs and reputational risk.

Frankly, there are simpler and more tax-effective assets to donate, whether it is during life or by will.  Homes come with dump truck loads of emotional baggage.  They are best sold and the proceeds gifted to charity.