Life Estate Question

[RWG1950]

I've thought that a life estate required a written agreement or at least be recorded on the property deed but now I'm not so sure.
Several decades ago my father died & I bought the family home from my mother so she'd always have a place to live.
We had no written agreement on this & nothing on the deed reflects life-estate. Back then this did not occur to me.
Never charged my mother rent, but she did pay something to help with property taxes. She recently died at age 93.
The property is modest but has appreciated greatly over the last 36 years.
If this house is sold, do I have a LTCG based on my total cost basis or a stepped-up basis per the life estate rules ?
Thanks for comments.

[New York Enrolled Agent]

I bought the family home - There is no indication from you that there was anything but an-arms-length transaction here. Thus, I presume you bought the house at its true value. You were a good son - however, since your mother sold you the house free and clear it does not appear §2036 will apply to you.

There is a proviso in §2036 in the form of an exclusionary parenthetical piece.

except in case of a bona fide sale for an adequate and full consideration in money or money's worth

[Burke]

As stated above, the Life Estate treatment of stepped-up basis does not apply to market-value sales. The reason for a stepped-up basis when the deceased owner retained a life estate interest (whether written or implied), is that it qualified to be treated as an incomplete gift at the time of transfer. If it was sold to you originally, it cannot be a gift. Therefore, it cannot be part of her estate which is the requirement for stepped-up basis treatment. You have a LTCG, assuming you never treated the residence as your principal residence. If you had lived there for at least 2 out of the 5 years before her death, you would have met the ownership and residency requirements to treat it as such.

[RWG1950]

More details on this
Shortly before my father's 1984 death my parents had re-financed & cashed out, so my mother inherited a fully mortgage house.
She was not working and not familiar with financial matters. I was called into all this when she was notified of foreclosure proceedings.
I agreed to buy the house from her by means of contract for deed for the amount owed and the bank allowed me to assume her mortgage.
We had an attorney handle the paperwork on this & I can recall that part of the deal was that she had the right to live there rent-free at least
until the 20 year mortgage was paid off. Turns out she lived there for 36 more years.
These circumstances were noted in the sale contract drafted by the attorney but apparently were not recorded on the deed.
Had thought this might have implied some sort of life estate.

[Burke]

Still,.....it appears the house was sold to you, not merely transferred. Don't suppose that attorney is around any more but it sounds like he did not advise either of you well on the matter. Even if it had been recorded on the deed, I am not sure that changes anything. However, you may wish to consult a real estate attorney who is familiar with Life Estates to get an opinion. It all boils down to whether it can be treated as a gift. Sounds as though it was a full-to-near market valuation at the time, although I doubt the bank gave them 100% value at the refinancing.