Cost basis of a remainder interest

Mar 30, 2013 1 Replies
N

Adam, a widower with a son, buys a house for $300k. Adam then marries Betty but retains sole ownership. When Adam dies, the house is worth $800k. Adam's will calls for Betty to have a life estate. (Assume actuarial tables put Betty's life estate at 30%.) As per Adam's will, son Chuck inherits the property when Betty dies. By the time Betty dies, the house is worth $1.1 million. What is Chuck's basis?



As side issues: (A) After Adam dies, suppose Betty determines that the house is too big for her. Can Betty rent the house during her lifetime and keep the rental income? Who suffers the economic loss if the tenants damage the house? (I guess it's no different that if Betty damaged the place before she died) (B) If Betty and Chuck agree, can they sell the property and split the proceeds?


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S

Good question. I hope someone who knows this off the top of his head will come along soon.

Depends on exactly what the will says. If it says she can do what she wants with the property as long as she lives, she can rent it out until she dies. But if it says she can live it in as long as she wishes, then Adam's son may get it if Betty moves out, even while she is alive.

The life tenant is supposed to prevent waste on the property while he is alive. So that probably means it's Betty's problem.

Some states will allow that and others won't. It would be called a partition in kind.

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