Gift/Estate Tax on Life Estate

[bklynjer]

What is the name of your state? FL

My mother has deeded her house to me through a life estate, retaining the remainder interest for herself. I am preparing her Form 709 and I understand the the entire value of the house (with no discount) is included in her Gift Tax return.

I believe that the house will also be includable in her future Estate Tax return. If that is correct, isn't that double counting the asset? Thanks for your help

P.S. -- A senior member suggested I move this posting from Estates and Trusts to this Tax Thread. I am new at this -- sorry for the "double posting"

 

[abezon]

A life estate-remainder interest is *usually* a bad way to plan your estate. Did mom consult an estate planner/lawyer first or did she just decide this was a great idea? Chances are it's going to screw you up down the road. At the very least, hire someone to do the gift tax return.

 

[bklynjer]

Follow-up

The Life Estate WAS done by an Elderlaw Attorney, in conjunction with other gifting for Medicaid Qualification purposes. Why is Life Estate generally a bad estate planning tool?

To my original question, if the gross value of the residence is reported on 2004 Form 709, will the residence be includible on the eventual 706?

 

[abezon]

Life estates are less than great because the the remainder interest person (you) gets no step up in basis. They're good if you're trying to reduce assets, remain eligible for medicaid, & keep your home. Many people who grant life estates don't know what they're doing & end up giving their heirs a huge tax burden. Presumably if your mother is using a professional, this was all discussed & a life estate is a good solution. Personally, I prefer living trusts in this situation, since the house is protected AND the heirs get a basis step up.