Life estate, deduction?

Client and sister (in CA) inherited parents' home in Rhode Island. House sold for $17,000 more than appraised value, d of d. In escrow, there was $80,000 reserved (into an account) for the life estate of the widow who is in a nursing home. Is the $80,000 deducted from the profit or do we ignore it and use the $17,000 profit? Nan, EA in LA

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Reply to
Nan, EA in LA
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The life estate has the same value both immediately before and immediately after the date of death. So my guess is that the entire profit is attributed to the residuary beneficiaries (client and sister). Stu

Reply to
Stuart A. Bronstein

How does that work? How does one (or two in this case) inherit a house from a widow not yet deceased? OR, was the house owned solely by the now defunct father?

ChEAr$, Harlan Lunsford, EA n LA Sat 12 Mar 2005

Reply to
Harlan Lunsford

If the facts are correctly stated, what probably happened is that husband left his wife a life estate in the house, with the remainder going to the two daughters. Since the widow is in a nursing home and not able to "enjoy" the life estate, it is possible to sever or partition the life estate from the remainder estate. That can done by checking IRS longevity tables (I forget at the moment where they are in the regulations), and multiplying the life tenant's calculated percentage of ownership by the full value of the property. For example, if the tables say the wife's interest (based on age and prevailing interest rates) is 33%, and the home was worth $240,000, then the widow's portion is worth $80,000. Stu

Reply to
Stuart A. Bronstein

Good question Harlan. I need to ask questions of the Rhode Island attorney. The escrow paper listed the $80,000 as if it were an expense in escrow - reducing the amount received by the two beneficiaries. The widow may have had the right to inhabit the house for her lifetime but she is not able to do so and the money is set aside to pay her nursing home costs. (Hate having to figure out legal rights in eastern states. They're different!) Nan, EA in LA

Reply to
Nan, EA in LA

I'm just getting familiar with Google's layout for misc.taxes so this may double up. Sorry. But the replies have been very helpful. The widow is in a nursing home and the $80,000 is set aside for her expenses. It was listed in the escrow as if it were an expense of the sale and reduced the proceeds to the two children. I see that I need to contract the Rhode Island lawyer. Was the house solely owned by the father? Did the wife have any ownership? Etc......... Very tricky dealing with eastern states; they're really different. Nan, EA in LA

Reply to
Nan, EA in LA

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