Retained life estate


B

BKJ

I would like to get your thoughts on this scenario:

Mom quit claim deeds to her four children property in
tenancy in common and retains a life estate. Son dies
before Mom.

Does the son have any interest that must be included in his
gross estate for estate tax purposes?
 
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Stuart A. Bronstein

BKJ said:
I would like to get your thoughts on this scenario:

Mom quit claim deeds to her four children property in
tenancy in common and retains a life estate. Son dies
before Mom.

Does the son have any interest that must be included in his
gross estate for estate tax purposes?
It depends on exactly what was done and how. But I'd guess
that son's estate might very well be required to include the
portion of what he owns, even if the entire value of the
property would have been required to be included in Mom's
estate of she died first.

This is actually fairly obscure (though fairly common with
joint tenancies) and may actually end up being a pretty
complicated question to answer, so you'd better see someone
locally who can really look into it for you.

Stu
 
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Perry1

It depends on exactly what was done and how. But I'd guess
that son's estate might very well be required to include the
portion of what he owns, even if the entire value of the
property would have been required to be included in Mom's
estate of she died first.

This is actually fairly obscure (though fairly common with
joint tenancies) and may actually end up being a pretty
complicated question to answer, so you'd better see someone
locally who can really look into it for you.
many estate and probate books cover these situations and
conclude that unless the son contributed money to obtain an
interest in the real estate or "life estate" then it would
not be a part of the estate tax rules.
 
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H

HW \Skip\ Weldon

Perry1 said:
many estate and probate books cover these situations and
conclude that unless the son contributed money to obtain an
interest in the real estate or "life estate" then it would
not be a part of the estate tax rules.
By this do you mean that absent a financial contribution
from the son that the property would remain 100% in mother's
estate until she passed or gifted the property outright
(without the retained interest)?

-HW "Skip" Weldon
Columbia, SC
 
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Stuart A. Bronstein

many estate and probate books cover these situations and
conclude that unless the son contributed money to obtain an
interest in the real estate or "life estate" then it would
not be a part of the estate tax rules.
I'd love to see citations.

There is a specific statute stating that for joint tenancy
property. There is no comparable statute saying that for
life estates.

I am unaware of such a statute with respect to life estates.

By ordinary rules of statutory construction the fact that
Congress did make such a rule in one case and not in another
indicates that, if they wanted that rule to apply to life
estates they would have said so. So it would be likely that
it would not.

That doesn't make a lot of sense from one standpoint, since
the law requires the parent to include all the value of
property to which she has retained a life estate, in her
estate when she dies. So if she is treated as the owner of
the entire property, the person who received the remainder
interest should be considered as owning no part of the
property.

Unfortunately the law doesn't say that.

Stu
 
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Perry1

many estate and probate books cover these situations and
By this do you mean that absent a financial contribution
from the son that the property would remain 100% in
mother's estate until she passed or gifted the property
outright (without the retained interest)?
yes
 
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Perry1

This is actually fairly obscure (though fairly common
I'd love to see citations.
sorry, you'll have to read the books yourself!

There are "beneficiary deeds" and other methods (without the
use of revocable trusts) to avoid probate
 
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S

Stuart A. Bronstein

By this do you mean that absent a financial contribution
from the son that the property would remain 100% in mother's
estate until she passed or gifted the property outright
(without the retained interest)?
Yes, that's the situation in any case under section 2036.
But the question is, just because it would be considered all
the mother's property if she died first, would any of it be
considered as owned by the son if he died first? I have not
had occasion to research this issue - I doubt that it would
come up often if at all. But as far as I'm concerned the
outcome is far from clear.

Stu
 
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Stuart A. Bronstein

many estate and probate books cover these situations
sorry, you'll have to read the books yourself!
Ok, just what books are those?
There are "beneficiary deeds" and other methods (without the
use of revocable trusts) to avoid probate
I know all about various ways to avoid probate. That wasn't
the question. In fact, the question had nothing to do with
probate.

The issue was, to quote to OP, "Does the son have any
interest that must be included in his gross estate for
estate tax purposes?"

As far as that question goes, I haven't read anything by any
commentator saying that, other than in joint tenancy
situations, including the entire property in the mother's
estate if she died first would mean none is included in the
son's estate if he were to die first.

Again, that's the case with respect to joint tenancy
property because of the specific provisions of section 2040.
But I am not aware of a statute that says that with respect
to any other property.

Stu
 
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Perry1

At your local B&N or library there probate and estate tax
books but they are for non-lawyers! These types of books
tend to upset lawyers as they detail methods to avoid
probate and/or estate taxes without using legal trusts.
Various estate scenarios are covered when holding title in
real estate and and honestly, I don't have all the
"citations" or answers. I would just recommend to the OP
and anyone else dealing with estate planning issues - read
and become knowledgable!
 
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Perry1

For anyone interested in this question and other estate
planning problems one answer can be found in "Living Wills
and Trusts" by Holmes F. Crouch (2005) Page 7-4, where the
example shown is a widower who adds his daughter and son on
the title to a personal residence (real estate) and his son
dies first. The question in the example asks, "Does the son
have any interest that must be included in his gross estate
for estate tax purposes? The basic answer is $0 if the son
didn't contribute anything. A lawyer might say "but what if
both died in a plane crash and there was no one left to show
that money was not contributed" - That's why I caution that
these books are for non-lawyers, If you do estate planning
without a lawyer they tend to get upset!
 
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Stuart A. Bronstein

Perry1 said:
At your local B&N or library there probate and estate tax
books but they are for non-lawyers! These types of books
tend to upset lawyers as they detail methods to avoid
probate and/or estate taxes without using legal trusts.
No, lawyers get upset with them because they give incomplete
and misleading information that could cause people to do
things that end up leading to trouble. I've had to get
people out of trouble who have done just that.
Various estate scenarios are covered when holding title in
real estate and and honestly, I don't have all the
"citations" or answers.
So you shouldn't try to give legal advice if you don't
really know the answer, particularly if you are basing your
advice on incomplete information.

Stu
 
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H

HW \Skip\ Weldon

Stuart A. Bronstein said:
Yes, that's the situation in any case under section 2036.
But the question is, just because it would be considered all
the mother's property if she died first, would any of it be
considered as owned by the son if he died first? I have not
had occasion to research this issue - I doubt that it would
come up often if at all. But as far as I'm concerned the
outcome is far from clear.
If giving property while retaining a life estate causes the
property to remain in the original owner's estate, is there
an estate planning reason for doing it?

-HW "Skip" Weldon
Columbia, SC
 
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Drew Edmundson

Stuart A. Bronstein"
It depends on exactly what was done and how. But I'd guess
that son's estate might very well be required to include the
portion of what he owns, even if the entire value of the
property would have been required to be included in Mom's
estate of she died first.

This is actually fairly obscure (though fairly common with
joint tenancies) and may actually end up being a pretty
complicated question to answer, so you'd better see someone
locally who can really look into it for you.
Why wouldn't son's estate be required to include something?
His estate now owns 1/4 of the property. The estate just
can't take possession until mom passes. But when she does
pass the 1/4 the house will be owned by the son's estate or
by whoever the son named as his beneficiary.

The son has a remainder interest. See Regulation 20.2031-7.
 
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Stuart A. Bronstein

If giving property while retaining a life estate causes the
property to remain in the original owner's estate, is there
an estate planning reason for doing it?
It's a way to avoid probate without a trust. It's not the
best way, but for that it works.

Stu
 
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HW \Skip\ Weldon

If giving property while retaining a life estate causes the
It's a way to avoid probate without a trust. It's not the
best way, but for that it works.
Another reason might be that it would be less likely to be
sucessfully contested at the original owner's death. But
again, there are better ways to accomplish this also.

At the end of the day, what surprises me is the number of
times people do this (gift property and retain a life
estate), thinking it is such a neat trick.

-HW "Skip" Weldon
Columbia, SC
 
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Stuart A. Bronstein

Drew Edmundson said:
Stuart A. Bronstein"
Why wouldn't son's estate be required to include something?
His estate now owns 1/4 of the property. The estate just
can't take possession until mom passes. But when she does
pass the 1/4 the house will be owned by the son's estate or
by whoever the son named as his beneficiary.
There's really only one reason I can think of, and that is
that, if the mother were to die first the entire value of
the property would be in her estate. So if she is treated
as owner of the whole thing, there isn't anything left for
the kids.

This is the approach taken with joint tenancy property. If
one joint tenancy provides all the consideration for buying
the property in the first place, it's all in her estate if
she dies first. If her son/joint tenant were to die first,
none of it would be considered part of his estate.

The joint tenancy rule, however, is based on the specific
provisions of section 2036. There are no comparable
statutory provisions dealing with life estates. As a
result, the rule is likely not to apply to life estates, and
the actuarial value owned by the son should be included in
his estate if he were to die first.

Contributor Perry1 claims that there are many commentators
and scholarly treateses that say the value of a remainder
interest should not be included in the son's estate under
these circumstances. However he has declined to name even
one of these, or supply any other support for his position.

Stu
 
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Dan Lanciani

This is the approach taken with joint tenancy property. If
one joint tenancy provides all the consideration for buying
the property in the first place, it's all in her estate if
she dies first. If her son/joint tenant were to die first,
none of it would be considered part of his estate.

The joint tenancy rule, however, is based on the specific
provisions of section 2036.
Is there any interaction with these provisions in
determining whether a completed gift is made at the time mom
changes title to joint tenancy with son for no
consideration? Or is that a separate facts and
circumstances question?

Dan Lanciani
[email protected]*com
 
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D

Drew Edmundson

Stuart A. Bronstein said:
There's really only one reason I can think of, and that is
that, if the mother were to die first the entire value of
the property would be in her estate. So if she is treated
as owner of the whole thing, there isn't anything left for
the kids.
snip

Read the Regulation and you will see that a remainder
interest is included in son's estate in this situation. So
part of the value could be taxed twice - once at the son's
death and then later at the mother's death. I do not see
the result as unfair as they arranged their affairs in this
manner, now they have to accept the results.

To me the Regulations are quite clear.
 
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Stuart A. Bronstein

[email protected]*com (Dan Lanciani) said:
(e-mail address removed) (Stuart A. Bronstein) writes:
Is there any interaction with these provisions in
determining whether a completed gift is made at the time mom
changes title to joint tenancy with son for no
consideration? Or is that a separate facts and
circumstances question?
Under section 2036, for joint tenancies between unmarried
people ownership is based solely on the consideration each
paid. When the gift is complete is irrelevant for this
purpose because even when there has been a completed gift
it's treated as if it didn't happen for tax purposes.

Stu
 
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