When does the remainder-man becomes the legal owner in life estate gift deed?

[curiousv]

WA state - pierce county

WA staste
In piece county WA - if a son transfer his free and clear ownership of his home to his senior citizen mother as a gift but retains life estate in the deed..

The mother (grantee) becomes the legal owner the same day or she becomes the owner day after the death of his life tenant son?(grantor)

In other words - son becomes judgment proof on the day of deed or he is still considered the owner until his death and people/lawyers can sue
him for civil damages ?

What are the advantages and disadvantages of retaining life estate vs free and clear transfer deed as gift

 

[Taxing Matters]

WA state - pierce county

WA staste
In piece county WA - if a son transfer his free and clear ownership of his home to his senior citizen mother as a gift but retains life estate in the deed..

The mother (grantee) becomes the legal owner the same day or she becomes the owner day after the death of his life tenant son?(grantor)

In other words - son becomes judgment proof on the day of deed or he is still considered the owner until his death and people/lawyers can sue
him for civil damages ?

What are the advantages and disadvantages of retaining life estate vs free and clear transfer deed as gift

If the son transfers to his mother the property but retains a life estate for himself what his mother gets is a remainder interest in the property. Note that any liens that attached the property prior to the transfer will still remain on the entire property. Any liens against the son that arise after the gift of the remainder interest may still attach to the son's life estate. Note, too, that even if a creditor does not have a lien interest in the property prior to the transfer, if the debt already existed at the time of the transfer and the son is insolvent after the transfer the creditors may seek to set aside the transfer under the fraudulent conveyance statute. When the son dies, his life estate interest terminates and the mother would at that point have a fee simple interest in the property. If the son wants to do this as a way of keeping his home from creditors he really needs to see a lawyer to find out if in fact it will work as he hopes and see if there may be some better way to achieve his goals.

Note that if the value of the remainder interest along with all other given to the mother during the year exceeds $15,000 the son will need to file a federal gift tax return and use up some of his lifetime unified credit or pay gift tax if that credit is already gone. When the son dies, that life estate will result in the full current value of the home being included in his gross estate for federal estate tax purposes, too.

 

[curiousv]

If the son transfers to his mother the property but retains a life estate for himself what his mother gets is a remainder interest in the property. Note that any liens that attached the property prior to the transfer will still remain on the entire property. Any liens against the son that arise after the gift of the remainder interest may still attach to the son's life estate. Note, too, that even if a creditor does not have a lien interest in the property prior to the transfer, if the debt already existed at the time of the transfer and the son is insolvent after the transfer the creditors may seek to set aside the transfer under the fraudulent conveyance statute. When the son dies, his life estate interest terminates and the mother would at that point have a fee simple interest in the property. If the son wants to do this as a way of keeping his home from creditors he really needs to see a lawyer to find out if in fact it will work as he hopes and see if there may be some better way to achieve his goals.

Note that if the value of the remainder interest along with all other given to the mother during the year exceeds $15,000 the son will need to file a federal gift tax return and use up some of his lifetime unified credit or pay gift tax if that credit is already gone. When the son dies, that life estate will result in the full current value of the home being included in his gross estate for federal estate tax purposes, too.

Thanks for taking time ...I like your detailed response.....You said ...'any liens against the son that arise after the gift of the remainder interest may still attach to the son's life estate' so it means even after transferring the property he is still on the hook..i.e. possibility of lawsuit? what is the value of life estate if any? how do they calculate value of life estate

Further can you please clearly tell me who becomes the legal owner after transfer with retained life estate .....so for example after transferring son got in to accident and his insurance limit was not enough ...to cover the damages of opposite party ...can the other party sue the son (even though he is not an owner any more)

 

[Ohiogal]

Thanks for taking time ...I like your detailed response.....You said ...'any liens against the son that arise after the gift of the remainder interest may still attach to the son's life estate' so it means even after transferring the property he is still on the hook..i.e. possibility of lawsuit? what is the value of life estate if any? how do they calculate value of life estate

Further can you please clearly tell me who becomes the legal owner after transfer with retained life estate .....so for example after transferring son got in to accident and his insurance limit was not enough ...to cover the damages of opposite party ...can the other party sue the son (even though he is not an owner any more)

He is an owner of a life estate in the property. Yes he can be sued. The house has nothing to with the accident.

 

[Taxing Matters]

Thanks for taking time ...I like your detailed response.....You said ...'any liens against the son that arise after the gift of the remainder interest may still attach to the son's life estate' so it means even after transferring the property he is still on the hook..i.e. possibility of lawsuit? what is the value of life estate if any? how do they calculate value of life estate

First, understand that you may always be sued regardless of what assets you have. The issue is whether the person suing you will think the lawsuit is worth pursuing if you have no assets or income to attach. Considering that liens can last a long time, it might still be worth suing you even if you have nothing now because you might have something a few years from now.

Life estates do have value. The life tenant has the right of possession during his/her lifetime, and that right has some value. The longer the life tenant may be expected to live the more value it will have. There are several ways to compute the value of a life estate, and which method you use depends on the purpose you are doing the computation. For example, for tax purposes you'd use IRS tables that will tell you what percentage of the fair market value of the home will be assigned to the life estate. A creditor might look at the value based on the present value of the net rent that could be collected on the property over the period of the life estate. Those are just two examples. There are other methods too.

Further can you please clearly tell me who becomes the legal owner after transfer with retained life estate

I answered that before. After the transfer both the mother and son are owners of the property, but they hold different rights in the property. The mother owns a remainder interest. That interest does not give her any right to live on or use the property but lasts after the life estate ends. The son gets a life estate interest which gives him a right to live on and use the property during his lifetime, but when he dies his interest ends so he cannot pass that on to his heirs. Both are forms of ownership interests and both have value.

so for example after transferring son got in to accident and his insurance limit was not enough ...to cover the damages of opposite party ...can the other party sue the son (even though he is not an owner any more)

As I said before, he can still be sued even if he has no assets. The plaintiff (the person suing the son) would get a judgment if he wins the lawsuit and that judgment becomes a lien that can last for many years. So should the son get something later on the person holding the judgment can take that to collect (unless it's property exempt from attachment). After the transfer with the retained life estate the son is still an owner of the property but what he now has is a lesser interest in it of a life estate. Life estates do have value.