life estate

[anitasavoy]

If a house in a life estate is sold before the life tenant dies, the proceeds are split between the life tenanat and the remainderman. On p 7 of IRS Pub 1457, Example 2 shows a remainder factor of 0.37309. The income factor is 1- .037309 = 0.62691. So if the life tenant is 65 & the remainderman is 60, then does 62.691% of the sale go to the remainderman? Im not sure if I am using the correct example.

If the remainderman is much longer than the life tenant, then if their interest more or less than the life tenant?

[jainen]

>>a life estate is sold before the life tenant dies<<

There are a number of technical issues here, and there may be more than one answer at the same time under different provisions of tax and contract law. What are they trying to do--shift or avoid capital gains tax, disinherit some undesireable relative, qualify for Medicaid? Possibilities are endless, and I don't think an untrained reading of IRS pubs will provide reliable guidance. I suggest you engage an experienced estate planner. Start by explaining how and why the life estate was established.

[anitasavoy]

Thanks for your reply. At present, the parents have a life estate according to the deed until they die, become a full-time resident in a skilled nursing facility, or vacate the property. The attorney who drew up the deed is most likely specialized in real estate & not elder law. The parents intend to vacate within 6 months. The son wanted to know how the sale would be taxed if sold within 3 years. The parents could get an exclusion for living there 2 out of 5 years. What I couldn't figure out was what % of the sale the son would have to report as income. In my original question I meant to say if the son is much "younger" not longer. I must have been thinking he would live longer than his parents.

[jainen]

>>until they die, become a full-time resident in a skilled nursing facility, or vacate the property<<

They have a limited right to occupy--but it is NOT a life estate, regardless of what terminology is on the deed.

There are a number of technical issues here, and there may be more than one answer at the same time under different provisions of tax and contract law. What are they trying to do--shift or avoid capital gains tax, disinherit some undesireable relative, qualify for Medicaid? Possibilities are endless, and I don't think an untrained reading of IRS pubs will provide reliable guidance. I suggest you engage an experienced estate planner. Start by explaining how and why the "life estate" was established.