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  1. #1
    Join Date
    Feb 2010
    Seattle Area

    Gift tax valuation of Life Estate

    What is the name of your state (only U.S. law)? WA

    What is the correct way to value a retained life estate in real property when it is relinquished?

    My situation has a parent gifting a parcel of real estate to her daughter in 2000, retaining a life estate in the property. The property consists of a residence and 2 outbuildings on roughly 25 acres of land.

    At the time, the retained life estate was valued at $0 for purposes of valuing the remainder interest, under IRC Sec. 2702.

    In 2005, the parent quitclaimed the life estate to her daughter, but due to some confusion, no gift tax return was filed at that time. Now we're preparing to file a late return to report that gift, but have reached some disagreement over how to value the life estate.

    Should the life estate be valued under IRC Sec. 2702, since it is a retained interest? If so, is there any reason to think that the value should be anything other than $0? [For example, Sec. 2702(c)(4) might apply to the portion of the property which is raw land.]

    If the retained life interest somehow loses its "retained" character, should it simply be valued according to IRC Sec. 7520, using the IRS tables? If this is the case, can someone offer an explanation as to why Sec. 2702 doesn't apply here?

    Any insight would be most welcome!


  2. #2
    Join Date
    Mar 2006

    [url=http://papers.ssrn.com/sol3/papers.cfm?abstract_id=222731]SSRN-Estate and Gift Tax Effects of Selling a Remainder: Have D'Ambrosio, Wheeler and Magnin Changed the Rules? by Ronald Jensen[/url]

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