Questions on Life-Estate Interest and Remaindermen

[Paul84]

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

To avoid probate, my mother transferred her personal home, a condo, to my siblings and me, via a quitclaim deed while retaining life use for "income, use, improvement, occupation, and enjoyment". Eight years later, my mother is now selling the property, with the consent of my siblings and me, the "remaindermen".

Questions: Can my mother alone act as the seller for purposes of the house sale contract, and do we, the remaindermen, need to provide her with (notarized), written consent to avoid any hassles on the seller's ownership from a title search by a prospective buyer?

 

[LdiJ]

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

To avoid probate, my mother transferred her personal home, a condo, to my siblings and me, via a quitclaim deed while retaining life use for "income, use, improvement, occupation, and enjoyment". Eight years later, my mother is now selling the property, with the consent of my siblings and me, the "remaindermen".

Questions: Can my mother alone act as the seller for purposes of the house sale contract, and do we, the remaindermen, need to provide her with (notarized), written consent to avoid any hassles on the seller's ownership from a title search by a prospective buyer?

You will all have to be involved in the sale. All your mother owns is a life interest. You are your siblings are basically the owners of the property. It might be possible for all of you to give her power of attorney to act on your behalf, but that's a bit iffy. If she is going to keep all of the money there are going to be significant tax issues to deal with...for all of you.

Had she retained ownership of the property and used a trust or some other method to avoid probate, then she would be entitled to a 250k capital gains exclusion and might have been able to avoid any capital gains tax on the transaction. However, because she deeded it over to you all and retained a life estate, each of you are going to have to report your portion of the sale of the property on your tax returns, with your proportional share of her original basis, and there will be no capital gains exclusion on your shares. Therefore you will all be paying capital gains taxes on your share.

 

[Paul84]

You will all have to be involved in the sale. All your mother owns is a life interest. You are your siblings are basically the owners of the property. It might be possible for all of you to give her power of attorney to act on your behalf, but that's a bit iffy. If she is going to keep all of the money there are going to be significant tax issues to deal with...for all of you.

Had she retained ownership of the property and used a trust or some other method to avoid probate, then she would be entitled to a 250k capital gains exclusion and might have been able to avoid any capital gains tax on the transaction. However, because she deeded it over to you all and retained a life estate, each of you are going to have to report your portion of the sale of the property on your tax returns, with your proportional share of her original basis, and there will be no capital gains exclusion on your shares. Therefore you will all be paying capital gains taxes on your share.

Thanks for the reply, LdiJ. Actually, there will be a capital loss--of about 25% on the 2001 purchase price, after factoring in selling expenses. My mother would prefer to keep none of the proceeds, to avoid attachment if she were ever to go into a nursing home, but such homes, I think, have a five-year look-back provision if she gifts all of her sale proceeds immediately to her children. As for my own tax returns, since I never lived in the property, could my share as remainderman be considered an investment and therefore able to offset either (1) capital gains from other investments or (2) earned income for the year of the sale?

 

[LdiJ]

Thanks for the reply, LdiJ. Actually, there will be a capital loss--of about 25% on the 2001 purchase price, after factoring in selling expenses. My mother would prefer to keep none of the proceeds, to avoid attachment if she were ever to go into a nursing home, but such homes, I think, have a five-year look-back provision if she gifts all of her sale proceeds immediately to her children. As for my own tax returns, since I never lived in the property, could my share as remainderman be considered an investment and therefore able to offset either (1) capital gains from other investments or (2) earned income for the year of the sale?

Any capital loss can be deducted against other capital gains, but otherwise you can only deduct 3000.00 per year against other income until its all used up.
You are going to need an expert to determine the value of mom's lifetime estate, vs you and your siblings remainder interest. There are appraisers who specialize in that sort of thing. I believe that its possible for your mother to abandon her lifetime estate, but that really needs to be discussed with an estate planning attorney.

 

[Paul84]

Any capital loss can be deducted against other capital gains, but otherwise you can only deduct 3000.00 per year against other income until its all used up.
You are going to need an expert to determine the value of mom's lifetime estate, vs you and your siblings remainder interest. There are appraisers who specialize in that sort of thing. I believe that its possible for your mother to abandon her lifetime estate, but that really needs to be discussed with an estate planning attorney.

Thanks, again, LdiJ. Actually, I think these tables nicely summarize the value of the lifetime estate and remainder interest: https://www.dcf.state.fl.us/programs/access/docs/esspolicymanual/a_17.pdf

 

[Paul84]

Connecticut form PoA - can you notarize it in California, crossing out CT for CA?

It might be possible for all of you to give her power of attorney to act on your behalf, but that's a bit iffy.

I will be using a notarized and witnessed, Connecticut, standard, long-form Power of Attorney (PoA) granting my mother such powers as pertain to the sale of the condominium as well as the right to transfer that power to another person--i.e. an actual attorney if we decide to use one for the transaction. However, my surviving brother is in California. Can he use the same Connecticut PoA there and get it notarized locally, or would he have to us a California PoA form? In the signature areas, the Connecticut form has pre-printed "STATE of CONNECTICUT, COUNTY of ... " Perhaps he could use the same form and cross out CONNECTICUT, substituting CALIFORNIA?

 

[NIV]

Thanks, again, LdiJ. Actually, I think these tables nicely summarize the value of the lifetime estate and remainder interest: https://www.dcf.state.fl.us/programs/access/docs/esspolicymanual/a_17.pdf

In your threads it is clear you have done a lot of thinking on these complex matters. Also in these threads you make a lot of legal conclusions and want us to assume a lot of facts to get specific answers you target. Why would you even mention tables that are of no relevance to your taxation issues? When you do so it has me either want to clarify all facts and your conclusions or step away. Because this is just a lark for me, my answer is clear. Before I go, you might consider this page as more to what you seek:

https://www.irs.gov/retirement-plans/actuarial-tables

 

[Paul84]

In your threads it is clear you have done a lot of thinking on these complex matters. Also in these threads you make a lot of legal conclusions and want us to assume a lot of facts to get specific answers you target. Why would you even mention tables that are of no relevance to your taxation issues? When you do so it has me either want to clarify all facts and your conclusions or step away. Because this is just a lark for me, my answer is clear. Before I go, you might consider this page as more to what you seek:

https://www.irs.gov/retirement-plans/actuarial-tables

If you type "life estate and remainder interest" into google search, you get at least four websites, from various states, including the federal government (at https://secure.ssa.gov/poms.nsf/lnx/0501140120) that all exactly agree on the figures they provide in tabular format.

I think that whatever it is that you got from the irs.gov website is not applicable to this situation of remainderman interests, based on the age of the life-estate owner granting a life-estate deed.

 

[NIV]

If you type "life estate and remainder interest" into google search, you get at least four websites, from various states, including the federal government (at https://secure.ssa.gov/poms.nsf/lnx/0501140120) that all exactly agree on the figures they provide in tabular format.

I think that whatever it is that you got from the irs.gov website is not applicable to this situation of remainderman interests, based on the age of the life-estate owner granting a life-estate deed.

1. Go to the page I linked.
2. Click on the link to Publication 1459.
3. Read and understand the publication to show how to calculate the value of the life estate and the value of the remainder interests. Ignore the fact the example used is to determine the value of a gift and not to determine the values to be divided between the life estate holder and remaindermen on a sale because the calculation is the same for either.
4. Go back to the page I linked and click on the relevant table as provided by the IRS.

 

[Paul84]

1. Go to the page I linked.
2. Click on the link to Publication 1459.
3. Read and understand the publication to show how to calculate the value of the life estate and the value of the remainder interests. Ignore the fact the example used is to determine the value of a gift and not to determine the values to be divided between the life estate holder and remaindermen on a sale because the calculation is the same for either.
4. Go back to the page I linked and click on the relevant table as provided by the IRS.

Thanks for this. At present, for an upcoming hearing with a probate judge, I think I only need to have a (rough) approximation of the fair market value of my deceased brother's remainder interest, which in any event should be bypassing probate. As the size of any estate (or his previous gift from my mother) is far below the allowable federal (and state) lifetime maximum, I believe I don't need to calculate the gift tax portion. If I'm wrong about that, I'll bite the bullet and work through the numbers.

As it is, my mother probably vastly overstated the amount of gift she gave to each of her three sons via a quitclaim deed in '09 because none of us knew about the concept of remaindermen interests--she merely took the market value of the condo, which was much higher then, and divided it by three.

 

[NIV]

I understand your desire to not work through the numbers. The concepts are difficult and if you didn't have to learn them most would not put in the effort. You might consider the fact a probate judge probably had to work through the numbers at least once and used that conceptual understanding multiple times in his time on the bench.

You may determine the likelihood of success in using a word salad to slip your Googled estimate past his knowledge and how he might react to the rest of your argument when you get that part obviously wrong.

 

[Paul84]

I understand your desire to not work through the numbers. The concepts are difficult and if you didn't have to learn them most would not put in the effort. You might consider the fact a probate judge probably had to work through the numbers at least once and used that conceptual understanding multiple times in his time on the bench.

You may determine the likelihood of success in using a word salad to slip your Googled estimate past his knowledge and how he might react to the rest of your argument when you get that part obviously wrong.

I think it's best to play dumb, and only raise points if he's going to issue an adverse ruling.

 

[LdiJ]

I think it's best to play dumb, and only raise points if he's going to issue an adverse ruling.

I am still concerned that you do not fully understand what it means to be a remainder man and for your mother to have a life estate.

 

[Paul84]

I am still concerned that you do not fully understand what it means to be a remainder man and for your mother to have a life estate.

Well, then I won't have to play dumb as my ignorance on the matter will reflect the actual state of my understanding

 

[Paul84]

Next of Kin: Does the Rank Ordering Depend on Age of Siblings?

I am still concerned that you do not fully understand what it means to be a remainder man and for your mother to have a life estate.

At the upcoming hearing, my mother will ask to be administrator of my dead brother's affairs as he had no will. If the judge were to decide she is too old for that role, would the next in line be my older brother, who will not be attending the hearing, as he lives in California, or me? Does the age of siblings determine the rank ordering of kinship?