Life Estate and Sale Prior to Death

[peggysioux5]

Life estate created 15 years ago and parent is now 90 and still living. Children are selling home. I realize children will pay capital gains on their share and parent should be eligible for 121 exclusion, However, I have not dealt with the actual calculations of a life estate. What IRS tables do I use to determine Life Estate/Remainder % (I think Table S, but need confirmation) and do I use table based on current age of parent , date of sale, and sale price of residence? Will I need to determine value of life estate at creation date? Or are the calculations based on original basis of parent and then percentage of Life Estate/Remainder based on parent's age at time of sale? Any direction is greatly appreciated.
 

[DANRVAN]

Does mom still live in house?  Will mom continue to live in house after sold?  To unrelated party?

[DANRVAN]

On 2/20/2019 at 11:21 AM, peggysioux5 said:

Life estate created 15 years ago and parent is now 90 and still living. Children are selling home. I realize children will pay capital gains on their share and parent should be eligible for 121 exclusion
 

So how are the sales proceeds divided between mom and children?  Are children on deed along with mom as having life estate?

[peggysioux5]

Yes, sales proceeds divided between mom and children.  Yes, children are on deed along with mom with life estate.

[DANRVAN]

So you are probably dealing with this after the fact, but how did they determine the allocation of the proceeds with out a valuation of the remainder interest?  Since the property was deeded with a life estate there was an uncompleted gift.  Maybe a partial gift has now been made.

[peggysioux5]

On ‎2‎/‎25‎/‎2019 at 9:14 AM, DANRVAN said:

So you are probably dealing with this after the fact, but how did they determine the allocation of the proceeds with out a valuation of the remainder interest?  Since the property was deeded with a life estate there was an uncompleted gift.  Maybe a partial gift has now been made.

Would a gift tax return be required for 2018 being partial gift completed at time of sale?

[SaraEA]

If the title was put in the children's names, there was indeed a completed gift (of a future interest, so no annual exclusion).  It is difficult to find directions on how to handle remainder interests.  I have done a number of them over the years and will look for my notes at the office tomorrow.  I believe the remainder interest increases over time (as the donor ages), so you have to calculate the value on the date of sale (and calculate the value on the date of gift to determine basis).  Here is a link that kind of explains it.  Note that only the donor gets the Sect 121 exclusion.

https://www.elderneedslaw.com/blog/life-estate-deed-income-tax-issues

[peggysioux5]

Thank you so much for the detailed info Sara; very much appreciated.

Peggy Sioux

[DANRVAN]

On 3/5/2019 at 6:43 PM, SaraEA said:

  I believe the remainder interest increases over time (as the donor ages), so you have to calculate the value on the date of sale (and calculate the value on the date of gift to determine basis).

You use the ratios from the tables based on the parents age on the date of each transaction.

Use the ratios from the table based on parents age on date of gift to allocate the parent's basis between parents and children.

Use the ratios from the table based on parents age on date of sale  to allocate sale price  between parents and children.  Subtract the children's basis as determined above to calculate gain.

For form 709, you use the ratio's from the table based on parents age on date of gift to determine value of gift.

Also, since the proceeds were divided up without using the ratio's from the tables. there was most likely gifting from or to the parents due to Assignment of Income rule.