Is a Life Estate Considered Joint Property?

by Dick Nadler, CPA

When he died, my father held title to his condo as "life estate with revision upon his death and remainder interest to (me)." Is this considered joint property to be included in the estate for tax purposes?

Life estates are a somewhat complex area of tax law. In essence, life estates deed property to another entity while allowing the owners to have use of the property until they die. Technically, an asset such as a condo that is held as a life estate is treated exactly the same way at death as any other item of real estate. It is the decedent's property -- not that of the person or organization that will receive the property when the owner dies. Therefore, it is not the joint property of the decedent and the party that will take over the property at time of death.

Here's an example: Say a condo's fair market value is $100,000 at the time of the death of the owner, who was 75 years old. The IRS sets the interest rate for the month at 7 percent. Looking at its actuarial chart, we determine that the factor for a 75-year-old is 0.46096. Multiplying $100,000 by 0.46096, we find that the life estate value of the condo is $46,096.

Life estates are often used to deed property to charitable organizations because of significant tax advantages that come to the owner. It is a good idea to contact a CPA with experience with life estates to determine if it is worthwhile to deed property as a life estate, however. I once was involved with preparing a return for a life estate that deeded 2,400 acres of land to a son and daughter while allowing their parents to live on the property for the rest of their lives. When the father died, it took us six years to resolve the value of the real estate.

Dick Nadler, CPA, is principal of Nadler Accountancy Corp., Orangevale, Calif., and a member of the California Society of CPAs, Sacramento chapter. His e-mail address is dick@nadlercpa.com.

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