Is this a gift tax return?

[JG EA]

TTB on page 21-24 says

If the original owner is still alife tenant at death, the value of the entire property is included on Form 706. The taxable gift reported on Form 709 is not included on Form 706.

Does this mean that since my client gifted her house to her kids now she does or does not need to do a gift tax return if she retains a life estate.

I always thought not, but this wording confuses me.

[Jesse]

From a 2008 discussion:

I don't know if there has been any new developments but here is some direction from two very knowledgeable posters:

I don't believe there is any automatic "yes" or "no" answer as to whether a transfer of property with the transferor keeping a life estate is a completed gift. It may be a completed gift. But, my understanding is that, if the transferor retains any special powers of appointment to change the interests of the persons who received the remainder interests, then the gift is incomplete and not subject to gift tax.

NYEA is correct. See §25.2511-2. This is why an Enhanced Life Estate Deed, also known as a Lady Bird Deed, is superior to a regular Life Estate. I have used it in Texas. At times, I believe they are referred to as Defective Life Estates.

From 25.2511-2(b):


From 25.2511-2(d):


Note in PLR 1640160-01 by the father reserving the power to revest the property to himself is what made it an incomplete gift.

http://www.irs.gov/pub/irs-wd/0308046.pdf

Here is a link to one on file in Florida.

http://images.pascogov.com/deed.aspx?c=6128|1577|0&type=pdf

[JG EA]

Thank you very much Jesse. I priinted out the one and will do some more looking based on this information. The attorney told my client when asked about the gift tax return that it had not been done and not that it didn't have to be done. I've actually never done one before! I didn't apparently pay attention to details. The attorneys usually do the return or say it doesn't have to be done.

Thanks so much. That second link I cut and pasted and got someone's Quit Claim, but you gave me enough to do more looking and I'm not asking for more.

[Gretel]

JG, please keep us posted on your findings. Jesse, the PLR reminder is a great find.

It is my understanding that if a residence is deeded to kids 100%, with recorded or implied life estate but no agreement to get house back if mind is changed, then a gift tax return needs to be filed.

I believe the confusion is that such a properties gets dual treatment depending on if 1. parents dies in this home or 2. parents ends up in nursing home and kid sells home while parent is still alive.

In first scenario, home will get step up and is included in Estate tax return. In second scenario kid gets gift basis.

As I say, this is my understanding what generally happens if other details or state law doesn't dictate something else. This is why I am really interested to learn what you find our in your case, JG.

[JG EA]

I am filing an extension, but will handle shortly after tax season and I will post about it. Thanks for your info also.

It is interesting that now, if your return is extended then the gift tax is automatically extended. But if you file your return and extend the 709 then you file Form 8862 for automatic extension.