LIFE ESTATE ?

[D Eckerman]

PLEASE help - anyone familiar with life estates?

When a LE is created - is that considered the date sold, purchased and the basis as of that date or because there is no control until the party passes away, therefore it is inherited? Thx D

[Redneck]

PLEASE help - anyone familiar with life estates?

When a LE is created - is that considered the date sold, purchased and the basis as of that date or because there is no control until the party passes away, therefore it is inherited? Thx D

I can't remember the code section, but when I got involved with one of these, several years ago, it was considered an uncompleted gift and remained in the estate of the holder of the life estate, and received a step-up in basis and time of death of the life estate holder. If that is no longer the case, someone else will jump in and correct me.

[Redneck]

I can't remember the code section, but when I got involved with one of these, several years ago, it was considered an uncompleted gift and remained in the estate of the holder of the life estate, and received a step-up in basis and time of death of the life estate holder. If that is no longer the case, someone else will jump in and correct me.

Should have said "received a step-up in basis AT time of death".

[mcb39]

PLEASE help - anyone familiar with life estates?

When a LE is created - is that considered the date sold, purchased and the basis as of that date or because there is no control until the party passes away, therefore it is inherited? Thx D

[mcb39]

De.....the value of the LE is determined on the day that the final remainderment holder dies. Up until then it is just being held for the heirs. Marilyn

[mgmea]

Life estates usually involve a parent gifting the house to the children while retaining a life estate in the house. In this situation, under IRC 2036, when the parent dies, the full FMV of the house at date of death of the parent must be included on a federal estate tax return. As such, it gets a step up in basis to full FMV at date of death of the parent. This may all change in 2010 if the scheduled estate tax changes go through.

[Booger]

This question just came up this AM...if house is sold, is the parent able to take the Section 121 exclusion, assuming

he/she meets all the requirements? The parent has not passed away, but was moved into a nursing home a couple

of months ago. She has 2 children (over 18) that are in the process of selling the home. The 2 children have a life

estate interest in the property, and the property was NOT their principal residence.

Booger (Mike)

[mcb39]

This question just came up this AM...if house is sold, is the parent able to take the Section 121 exclusion, assuming

he/she meets all the requirements? The parent has not passed away, but was moved into a nursing home a couple

of months ago. She has 2 children (over 18) that are in the process of selling the home. The 2 children have a life

estate interest in the property, and the property was NOT their principal residence.

Booger (Mike)

The answer is No for the children and possibly yes for the remainderment that the parents still retained. This is one of the dangers of the LE. Since the parents are still alive, the childrens' basis is the parent's original basis just as in gifted property. This would be opposed to inherited property with the advantage of the stepped up basis. Perhaps someone else can verify whether the parents' remainderment enters into this as a Sect 121 exclusion for their share.

[Booger]

Thanks for your input, mchampine.

Booger (Mike)

[Single Dad]

Good to see ya here Booger!

I'll be posting my 10 funny tax season's predicament's soon, be sure to look for them

AHHHHHHHHHHHHh, it feels good to be done!

Regards,

Single Dad

[mgmea]

The answer is No for the children and possibly yes for the remainderment that the parents still retained. This is one of the dangers of the LE. Since the parents are still alive, the childrens' basis is the parent's original basis just as in gifted property. This would be opposed to inherited property with the advantage of the stepped up basis. Perhaps someone else can verify whether the parents' remainderment enters into this as a Sect 121 exclusion for their share.

Actually, the parent has the life estate and the children are the remaindermen in this example. Off the top of my head, I recall being told by an experienced elder care attorney that if the life estate holder sells the home before death, the entire amount qualifies for sec 121 exclusion. The remaindermen (the children) do not have an ownership interest until the life estate holder dies is how I recall it was explained to me. This may vary depending on state law.

I would advise you to check with an experienced elder care attorney in your area. I would also advise the children selling the property to make sure their real estate agent knows what they are doing as a property subject to a life estate will not sell for anything near fair market value, if in fact the children are selling the home, as opposed to the parent selling the home. If they get the life estate taken off, they may have just erased any chance for sec 121 exclusion on the whole value for the parent.