Life Estate

[tpnl]

Mother enter into a Life Estate in 1996 with her children putting her home into the Trust. She moved into assisted living at the end of 2014 and the house was sold. What kind of Trust for obtaining an EIN do I need? None of the choices the IRS lists are applicable (I think) except "Trust (All Others)".

Do you think that is the correct choice?

Thanks

[ATSMAN]

I have used Trust box on line 9a of the ss4 form to get a EIN previously. I think it still works.

[Kram BergGold]

Trust?

Putting a house into a life estate does not necessarily create a trust. I have never known of anyone who has done both a life estate and a trust that affected the same property. Regardless you need to find the formula for allocating the gain between the mother and the children. This is the downside to a life estate. If you sell before the grantor dies the ownership is divided between all parties.

[tpnl]

Gain allocated to Mother and Children?

I will admit I am not familiar with Life Estates. I guess I assumed the sale would be treated as gain/loss to the beneficiaries. But some of the gain can go to the mother?

Can you suggest articles? I may have to refer this one on to someone who knows more, however, I would still like to learn about it. THANKS

[Kram BergGold]

Check out this article

http://budgeting.thenest.com/income-tax-issues-sale-life-estates-24808.html

If this is not helpful enough try an onlin eserach of "sale of a life estate"

[Gary2]

I agree that there's usually no trust associated with a life estate, although it's quite possible to create a trust that does something similar to a life estate.

The ownership shares of both basis and gains need to be apportioned using the IRS actuarial tables. Here's one link I found with some examples:
http://www.tax-business.com/201302.html .

[Burke]

I will admit I am not familiar with Life Estates. I guess I assumed the sale would be treated as gain/loss to the beneficiaries. But some of the gain can go to the mother?

Can you suggest articles? I may have to refer this one on to someone who knows more, however, I would still like to learn about it. THANKS

NATP did a good illustrative article in their TaxPro Monthly magazine of March 2007. In your situation, the home was sold prior to the Mother's death. Her life estate interest has a value which must be calculated using the IRS 7520 tables mentioned above. See also IRS Pub 1457. Once the value has been determined, the Mother would in all likelihood qualify for 121 exclusion for her part. The children would report their portion as a long-term capital gain on their Schedule D's.