Life Estate

[Bill Tubbs]

In 1993, parents transferred house to son #1 with a formal life estate filed down at the county courthouse. So, the transfer to son #1 was an incompleted gift (because of the life estate).

In 1998, father died, mother continued to live. Does son #1 still have a totally uncompleted gift since mother still has life estate? Or does son #1 now have a 50% completed gift?

Thanks,
Bill

[Snaggletooth]

Don't Think So

Bill, I hope lots of folks respond because there are apt to be varying opinions on this.

I don't think there can be a partially completed gift. Sorta like your wife being 50% pregnant. I do, however, believe that by virtue of father's death, the mother's basis is stepped-up by father's half, i.e. (original joint basis/2)+(FMV as date of death/2).
That's the way I see it -- but you're liable to have other opinions.

[OldJack]

I agree with Snag and especially his comment regarding your wife!

[BOB W]

Life Estate

I'm going to make an early morning comment on this. I believe the life estate was between the parents (as a unit) and the child. That being the case, no completed gift took place upon the fathers death. As a "unit" nothing will take place until the "unit" is dead.

Anyway that is what I think.

[Bill Tubbs]

Wife??

What's a "wife"? Me is still a bachelor.

I was figuring that the death of father would just affect the value of the mother's life estate; and that son #1 still would not really have any completed gift -- so sounds like at least the 3 of us agree.

That would sure simplify some things as back in 2003 the other 4 siblings were squacking that son #1 would have the house, so in 2006 they retitled it into mom 50%, and 10% to each of the 5 kids (apparently with some sort of stipulation that if mom wants to sell, that the 5 kids must also sign off unless the kid hires an appraiser which shows the house to be worth more than what she's selling it for). So, if the original 1993 gift was incomplete, then son #1 wouldn't need to worry about a gift tax return since he never completely received the gift. And, by the way, with the new retitling, mom also recorded a life estate. So, the 5 10% gifts are now also incomplete.

So, if I have this right, then mother basically retracted the 100% incomplete gift to son #1, and then gave 10% incomplete gifts to each of the 5 kids. My next question is: are gift tax returns due on these incomplete gifts? (I don't think so, but want to check.)

Any other thoughts/comments on what has transpired so far are most certainly welcome! I'm also wondering what reporting will need to be done if mom decides to sell the home before she dies with the way they titled it, but I don't know if I want to open that can of worms.

Bill

[BOB W]

Bill....

..... you need to look up "gift of future interest". I believe a gift tax return needed to be filed by the mother and father. Then a gift tax return by the one sibling back to the mother and than a gift tax return from the mother to the 5 children. If the mother decides to sell, another gift tax return needs to be filed by each of the children back to the mother. Very messy.. Of course the deed needs to be transfered in each transfer.

As to the value on each gift tax return for a gift of future interest, you will have to do the research or someone on the board may give you a better hint.

Also, each gift (transfer) uses up life time gifting. Probably no gift taxes we be due.

[OldJack]

Well... I have not done any recent research on this but I don't think that with related parties, with a written life estate, that there is a "gift of future interest" that is recognized or required to file a gift tax return. Mother is still living and all those deed transfers are only estate planning with no completed gift. Mom still retains and uses that property as her residence. Mom can, with some difficulty, sell it thereby qualifying for the residence exclusion if she likes.

[New York Enrolled Agent]

I'll be a little contrarian here and say that there may or may not be a completed gift. I don't think the fact that there is a life estate automatically excludes the possibility of a completed gift. I'm not a lawyer but I believe to avoid a completed gift the transferor should hold a special power of appointment that allows the transferor to change the interests of the remaindermen. I don't think you can easily give a yes or no answer in this area.