is Life Estate gift?

[rom299]

My dad (Non Resident) set up irrevocable trust. CA House is only asset. My kids are beneficiaries. I am trustee. Dad gave my right to live in the house as long as I am alive. After my death estate passes to kids. Is it gift? If so, how much I have to pay to IRS? House was bought for $400 (2012). Now it may be $500K . How do IRS estimate volume of the right to live in the property as long as I live, if it is gift?

 

[FlyingRon]

Did the dad deed you a life estate or is that something that is a condition of the trust?

In the former case, there definitely is a value to it. A gift tax filing may be due but it's unlikely it will generate any actual tax due unless Dad has millions of dollars of other assets. How much he paid for it is completely immaterial for this calculation.

 

[LdiJ]

Did the dad deed you a life estate or is that something that is a condition of the trust?

In the former case, there definitely is a value to it. A gift tax filing may be due but it's unlikely it will generate any actual tax due unless Dad has millions of dollars of other assets. How much he paid for it is completely immaterial for this calculation.

While I do not really agree with you on this topic its actually moot for the OP. The OP, as the receiver of the "gift" would not be responsible for a gift tax return. Any gift tax return would be the responsibility of the giver, his/her father, not the OP. Therefore OP would never owe any gift tax, which appears to be the OP's concern.

 

[FlyingRon]

That is true, it's definitely the giver's responsibility both for filing and for paying whatever tax their might be (but there likely isn't as I pointed out).

However both the life estate and the remainder interest DO have value. The problem is that there's not enough information here to answer the question.
However if dad deeded the property to the trust and granting a life estate to someone else is a reportable gift.
We're not talking about him retaining it for himself.

The transfer to the IRREVOCABLE trust of either the entire property or just the remainder interest is also a reportable gift.

 

[LdiJ]

That is true, it's definitely the giver's responsibility both for filing and for paying whatever tax their might be (but there likely isn't as I pointed out).

However both the life estate and the remainder interest DO have value. The problem is that there's not enough information here to answer the question.
However if dad deeded the property to the trust and granting a life estate to someone else is a reportable gift.
We're not talking about him retaining it for himself.

The transfer to the IRREVOCABLE trust of either the entire property or just the remainder interest is also a reportable gift.

It might be or it might not be, it depends on the terms of the trust.

 

[FlyingRon]

That is true, but I can almost bet that the whole point of this trust and the property dodge is to place it out of the reach of medicaid and the like and that would place it out of the range of grantor trusts.

 

[davew128]

I don't disagree with anything said so far, but one item not addressed is the one about the non-resident parent. Is that a non-resident of California or of the US? Makes a difference for the recipient of the gift. If a US non-resident, the receipt of the property as a gift or inheritance will require a Form 3520, and even the USE of the property if held in trust requires a 3520.