Inheritance or Gift

[Jesse]

Life estate was written up whereas parents has contemporaneously with the making of the agreement conveyed the premises to their children as a gift, and whereas the parties want the parent to have a place to live for the rest of the life of parent until parent dies or removes from the premises.

Agreement was drawn up in 1988 with parents remaining in the home and paying all bills and treating as their home until 2002. At that time they moved into a small apartment until deceased in 2008. The house remained vacant but the children paid the property taxes after parents moved out of the house.

I'm thinking this was would have been a life estate transfer if the parents lived and paid the property taxes up to their death, but because the parents left in 2002 and the children took over the payment of the property taxes it became a gift at that point.

Inheritance or gift?

[Koss]

Inchoate Gift

Life Estate is a very technical term. In most states, it refers to a specific type of deed, or form of ownership, in which the owner holds title until death. At death, ownership of the property then vests in the remainderman.

I don't think moving out of the premises terminates a life estate. But this may vary from state to state. This is a question that should be directed to an attorney.

With that being said...

I am questioning the language in your original post. I don't think you can "write up" a life estate. If I'm correct that the ownership interest doesn't terminate until death, then you can't create an alternate form of a life estate that is not recognized by state law.

Do you have a copy of the deed?

Maybe it's not a life estate. Maybe it's a living trust of some sort...

If the property was put into a trust, and the terms of the trust clearly state the intentions you described, then I would tend to agree that when the parents vacated the house, it became a completed gift during their lifetime.

BMK

[Jesse]

Thanks for you thoughts Burton, I will check on the deed tomorrow. I think I'm grasping at straws, but I thought maybe some type of implied life estate. The gain is quite large if gift basis is used. But it is what it is!

[Koss]

Possession is 9/10 of the law...

Even if it really is a life estate, in which the ownership interest didn't really terminate until the death of the parents, it could be argued that the parents' decision to stop maintaining the house and paying property taxes manifests an intent to effectively transfer ownership during their lifetime.

There is some case law, or some rulings on this issue, at least with respect to cases where the parents transferred ownership of their home outright (not a life estate or trust) to the children, but continued living in it and maintaining it. That fact pattern tends to show that the parents retained an equitable interest in the house, even though they may have transferred legal title.

Your client's situation almost seems to be the opposite, i.e., the parents may have retained legal title in some form, but the children may have acquired an equitable ownership interest by taking on the maintenance and property tax...

But it sounds like your client will benefit if you can make a reasonable case for treating it as an inheritance.

BMK