A mother lived in her home till her death and paid all the bills. Thirty years before dying she gave 2/3 of the house to her children and retained 1/3 in her name. Had she given away the whole house we would have a life estate and I would step up the basis on 100% of the house. In this case can 100% be stepped up or just the 1/3 the Mom owned at death. Essentially, can you have a life estate when the owner retains a percentage of the ownership?
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The question of whether or not a life estate exists starts as a legal question best addressed to a local attorney, preferably one familiar with both the state property ownership issues and the federal tax issues.
Note that a life estate is a form of ownership. I'm not sure if the question should be phrased as "did the mother retain a full life estate" or as "did the children receive a completed gift." Also, was a gift tax return filed when the 2/3 was assigned? -
My take on this is yes. Here is the IRC Code Section 2036(a): General rule: "The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer....[other than for adequate and full consideration in money....] by trust or otherwise, under which he has retained for his life....the possession or enjoyment of.....the property." So essentially, the entire property is included in the decedent's estate and gets stepped up basis, IMO.Comment
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Burke I agree
I have been doing some research and I have concluded that there is a 100% step up.
I never would have guessed this.Comment
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And that is assuming that the children have never lived there, paid the expenses, or otherwise made use of the property to their own benefit.Comment
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