March 19, 2025 • 15 mins
This week, Todd Lutsky explains the benefits and downsides of a life estate, tax burdens for beneficiaries, and selling property in a trust.
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Episode Transcript
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Speaker 1 (00:00):
This is Ask Todd on the Financial Exchange Radio network.
If you have an existing estate plan or in the
market for one, Todd Letsky is here to answer your
questions and help you plan for later life. Ask Todd
is presented by Cushing and Dolan, serving Massachusetts and New
England for more than thirty five years, helping families with
a state and tax planning, medicaid planning, and probate law.
(00:22):
Visit Cushingdolan dot com. Now here's Todd Lutsky.
Speaker 2 (00:27):
As promised, we are now joined by the one and
only Todd Lutsky for Ask Todd. It's your chance to
ask Todd your questions about your estate plan and we
got the phone lines wide open for you to give
him a call.
Speaker 3 (00:41):
Eight eight eight two zero five two two sixty three.
Speaker 2 (00:44):
That is the number to call to ask Todd your
state planning questions live on air right now.
Speaker 3 (00:51):
Usually get through two maybe three calls, so.
Speaker 2 (00:53):
Get calling early and often in order to make sure
your call is taken. Here again, eight eight eight to
zero five two two sixty three is the number. One
more time. It is eight eight eight to zero five
two two six three. Mister Lutsky, how are you doing today?
Speaker 3 (01:13):
I am never better. How are you good?
Speaker 2 (01:16):
Trying to plan some some summer trips and stuff like that.
Oh yeah, wife and I are considering a trip to
Mount Everest. She wants to color her hair at the
top of it. Yeah, she's willing to die on that hill. Todd,
I want to talk a little bit about uh, life estates. Okay,
(01:37):
Let's say that I am someone who has reserved a
life estate in a property. Okay, and I end up
going into a nursing home, all right, but not just
a property on your home, my home on my home. Ahead,
what happens to my home in that case? As far
as leans against it, equity, you need to be used.
(01:57):
How does how do things work from that perspective?
Speaker 4 (02:00):
So, as we've said before, there are two ways to
sort of do a life estate. A right way and
a wrong way, is what I like to say, But
I should say one is less bad and one is bad.
Speaker 3 (02:11):
So the way to do it is in your example.
Speaker 4 (02:16):
We're taking the house and we're putting it in the
hands of the children, and we're reserving the right to
live there, which is one way to do a life estate.
Speaker 3 (02:25):
Sure, so there are benefits.
Speaker 4 (02:27):
I don't want to make it sound like there's no
benefits to doing a life estate. There certainly is and
are benefits, one of which is what you said. Let's
say you put this arrangement together and you make it
that five years. Remember that that's that waiting period that
you really there's only a very few ways to ever
avoid that. But so for the most part, you're gonna
(02:48):
have to wait five years in order for it to
be protected from the nursing home. But if you set
it up and get beyond that waiting period, and in
your example, then to go to a long term care facility,
the house will be protected one hundred percent from the
nursing home.
Speaker 2 (03:06):
What about on the other side of that transaction, what
happens if I've transferred the property to my kids, and
let's say that one of them runs into some kind
of legal situation where they have a creditor who's looking
for money from them, or let's say that you know,
they need liquidity because something went wrong in their business
(03:27):
and they need to sell that property. How do things
work if they run into financial trouble.
Speaker 4 (03:32):
Yeah, I think it's a great question, because you've got
to look at a life estate from all angles, right
from all sides of this equation, and and the kids
side of this equation is where some of the problems
come in. While we just discussed a benefit, I think
some of the problems would be, you know it is
going to technically be exposed to that kid's creditors right away.
(03:54):
Why because they do own it. You made a completed
gift of a future interest. Now, good news for the
life tenant. The life tenant that they can't move against
the life tenant, so they will have that confirmed right
to live there. They won't lose the house to that creditor. However,
that child will have to deal with that creditor. Let's say,
(04:14):
for an example, it's a divorce. If it's a divorce,
at that moment, that child going through the divorce might
have to say to the soon to be ex spouse, Okay,
I'll tell you what. Here's the value of the home.
I'm going to keep the home to protect my mom,
and I'm going to pay you, you know the value,
(04:35):
your half of the value of that home, or just
allocate asset. So to me, it's still a problem for
the creditor. So I don't love it for that reason.
Speaker 2 (04:44):
Talking with Todd Watski from the law firm of Cushing
and Dolan. If you've got a question to ask Todd,
this is your opportunity, live on air right now, still
room on the phone lines at eight eight eight two
zero five two two sixty three. That is the number
to call to ask your questions again, eight eight eight
to zero five two two sixty three. We're gonna take
(05:06):
a quick break here, but when we come back, it
is right to your questions with Todd.
Speaker 3 (05:11):
That number one more time is.
Speaker 2 (05:13):
Eight eight eight to zero five two two sixty three.
Speaker 1 (05:18):
Ask Todd with Todd Letsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Todd Letsky
answers your questions about a state and elder life planning
every Wednesday at ten thirty right here on the Financial
Exchange Radio Network.
Speaker 3 (05:45):
All right, let's get to your calls with Todd. Let's key.
Speaker 2 (05:49):
First up, we've got Jimmy in Provincetown. Jimmy, what is
your question for Todd?
Speaker 5 (05:57):
Hi? Todd? How you doing? Never be question in regards
to when we sell the property in the trust? Yeah,
the taxation? If you on the capitol game, would the
trust pay it or do would the beneficiary pay it
after the assets are distributed.
Speaker 4 (06:14):
So so Jimmy remind me, just because there's lots of
Jimmy's are are you? Is this my trust that we
did or is it another person's irrevocable trust?
Speaker 5 (06:26):
Well, we did one for my mother, and then when
she passed away, we did a similar one for me
and my brothers and sisters. So I'm the trustee and
my brothers and sisters, uh beneficiary.
Speaker 4 (06:39):
And so okay, so what you're saying is you're my client. Yeah, okay,
I just needed to know that so that I can
you know, because then I know it's my trust. If
it was someone else's trust that I didn't draft, it
would be harder for me to answer the question. So
now that I can tell you that it's our trust,
and so your your portion of the property? Did you
(07:03):
you said your brothers and sisters inherited this property?
Speaker 5 (07:07):
We all did, so, y'all?
Speaker 3 (07:10):
Yeah, what percent do you own?
Speaker 5 (07:13):
I have a forty percent interest and.
Speaker 4 (07:15):
Your forty percent interest we put into an irrevocable trust
for you.
Speaker 3 (07:19):
Correct.
Speaker 5 (07:21):
I don't think so. I think it was just just
just don't I don't know if it was irreplicable or not. Oh,
so we can really do a flea trust like that?
Speaker 4 (07:31):
Oh so again, Jim, In order for me to answer
the question, I kind of need to know what kind
of trust we did for you. Just hard for me
to remember, right, you know, off the top of my head.
So I'm going to give you two answers. If we
did an estate plan together, I can assure you that
I would have transferred your interest in the property into
(07:51):
a trust, okay, And and the ownership your only your interest,
though not not the other chill other siblings. I would
have transferred your interest into a trust. That trust would
have been either revocable or irrevocable, depending on what your
wishes were. So when we met, was one of your
(08:12):
wishes to protect assets from the nursing home in case
you got sick in the future.
Speaker 5 (08:18):
I don't think we did a trust for me.
Speaker 4 (08:20):
Oh so, then you're we're probably not a client then,
in other words, other than I did it for.
Speaker 5 (08:24):
Your mom, right, you did it for my mom? Yeah?
Speaker 4 (08:28):
Okay, so your mom passed and you got forty percent interest. Yeah,
so I'm trying to understand your question. So now you're
selling that property? Yeah, okay, so you you went I'm sorry,
would you say.
Speaker 5 (08:43):
We're in the process of selling the property here on
the cave.
Speaker 4 (08:46):
Right, So you and your siblings are selling the property yep.
And you and your siblings are signing any purchase in
sale agreement in your own name, correct, yes, okay, So
there's no true trust involved here at all, because I
thought in the beginning you said you were selling it
from a trust and I might have misheard that. So
(09:07):
you're actually just selling it from your own name, correct, Yeah, okay,
So the answer is on the date of your mom's passing.
That property was fully included in her estate for estate
tax purposes, So like, when did she pass She.
Speaker 5 (09:24):
Passed in to sixteen, March fifteen to sixteen.
Speaker 4 (09:31):
So of twenty of twenty twenty four, twenty twenty five.
Speaker 5 (09:38):
She passed in twenty sixteen.
Speaker 4 (09:41):
Oh, in twenty sixteen, okay, So if she passed in
twenty sixteen, now that was quite a while ago, so
I'm sure there's been some appreciation. But the basis, the
cost basis for you and your siblings will be whatever
the value of that property was on the date of
her death in twenty sixteen. So you've got to go
(10:01):
back and get a back dated appraisal for that find
out what it was worth, then that's your basis. Then
whatever it has grown to from that day, the difference
between what you sell it for today and what it
was worth in twenty sixteen, plus any capital improvements you
(10:23):
might have made or your siblings have made to the
property since twenty sixteen is your basis. So date of
death value plus improvements is basis minus what you sell
it for today capital gain. And if you don't live
there as your primary residence, you're not going to get
any capital gains exclusion. It'll just be the capital gains
(10:46):
tax associated with that. So you know, good news in
the sense that at least you got as much of
a basis step up as you possibly could have by
doing the planning, or that your mother did the planning.
It's just now a function of paying the gain on
the future growth. So hope that helps, and good luck
with the sale. So, folks, you know, that's a great
(11:07):
question because capital gains come up all the time when
we talk about life estates, and so if you've got
a life estate and you're wondering if you go to
sell it, what the tax ramifications are, really need to
get the guide right, because this is one of those
things where you're going to find out that there are
sometimes negative capital gains tax consequences associated with selling a
(11:29):
home in a life estate arrangement, especially when the remaindermen
are the children. This guide not only talks about those issues,
it talks about the two ways to create a life
estate and other gift tax, income tax, estate tax, creditor
issues associated with loss of control. Another question associated with
(11:52):
these life life estates. So if you got one, or
you're thinking about doing one, call and get the guide
and learn what you're getting into. Eight six six eight
four eight five six nine nine or Legal Exchange Show
dot com again eight six six eight four eight five
six nine nine or Legal Exchange Show dot com Todd.
Speaker 2 (12:14):
Before the break, we were talking about potential downsides to
you know, kind of what you might see in a
life estate if things go wrong. We covered a couple
examples there. Huh, what other potential issues are there with
the use of life estates in a state plan? Is
kind of like a core piece of one.
Speaker 4 (12:33):
Yeah, and I think maybe it's it's it's a great
follow up question really to Jimmy who just called, because
I think we probably should spend some time since he's
selling a piece of property, and I can kind of
compare what he did or what his mom did and
what we did for them versus a life estate situation.
So he's selling piece of property after mom passes. So
(12:55):
that's a little different. Full step up. No problem in
the gain world except for the future growth.
Speaker 3 (13:00):
But if you're living.
Speaker 4 (13:01):
Right, people set this stuff up and they could be
sixty five, you know, nine five years later they want
to say, you know, now I'm seventy and I want
to move to Florida. Oh well, I want to sell
my house. Sure they should be allowed to do that.
But if you gave the house to the kids and
reserved a life estate, here are some steps that you
have to go through in order to sell it. First,
(13:24):
you have to ask the kids okay, well I don't
want to have to do that. That's problem number one.
Speaker 3 (13:29):
Number two.
Speaker 4 (13:30):
Let's assume that they're nice kids and they say, yeah,
we're going to sell it. Now both people have to sign,
the children and the life tenant. Then we have to
go to an IRS table based on the life tenant's
age in the month in which the life tenant is selling,
find the applicable federal interest rate in effect, so that
we can determine what percentage value of the proceeds from
(13:55):
the sale get allocated to the life tenant and what
percentage proceeds from the sale get allocated to the children.
I can assure you the older you get, the smaller
the percentage proceeds of the sale will be to the
life tenant. So if you're seventy five when you're selling this,
you might only get twenty twenty five percent of the money.
(14:17):
So if you sell the house and you only get
twenty twenty five percent of the money, I suspect you
don't have enough money to buy your new house in Florida.
So now you need to ask the children to give
you back money that they got. Well, that's not a
good place to be. In addition, what about the income tax? Oh,
(14:38):
I forget that for a minute. The kids might have
a gift tax when they give back the money to
mom and dad if they give it back, So that's
a problem. But more importantly, what's the capital gains tax? Well,
the life tenant would get to a capital gains exclusion
two fifty if you're married. I'm sorry if you're single,
five hundred thousand if you're married. But the children don't
(15:02):
if they don't live there, they don't get a remainder interest,
or they don't get a capital gains exclusion, They're going
to have to pay higher capital gains tax than you
would if we got the whole capital gains exclusion for
mom and dad.
Speaker 3 (15:14):
Folks. That's just one example of a life estate issue.
Mister Lutsky, thank you so much for joining us today.
Always a pleasure.
Speaker 1 (15:22):
This has been Asked Odd on the Financial Exchange radio network.
Ask Todd with Todd. Lutsky has been presented by Cushing
and Dolan, serving Massachusetts and New England for more than
thirty years, helping families with the state and tax planning,
Medicaid planning, and probate law. Call eight hundred and three
nine three four thousand and one or visit Cushingdolan dot com.
The views expressed in this segment are solely those of
(15:43):
Cushing and Dolan Armstrong Advisor. He does not provide any
legal or tax advice. Please consult with your legal or
tax advisor on such matters. Cushing and Armstrong do not
endorse each other and are not affiliated
This is Ask Todd on the Financial Exchange Radio network.
If you have an existing estate plan or in the
market for one, Todd Letsky is here to answer your
questions and help you plan for later life. Ask Todd
is presented by Cushing and Dolan, serving Massachusetts and New
England for more than thirty five years, helping families with
a state and tax planning, medicaid planning, and probate law.
(00:22):
Visit Cushingdolan dot com. Now here's Todd Lutsky.
Speaker 2 (00:27):
As promised, we are now joined by the one and
only Todd Lutsky for Ask Todd. It's your chance to
ask Todd your questions about your estate plan and we
got the phone lines wide open for you to give
him a call.
Speaker 3 (00:41):
Eight eight eight two zero five two two sixty three.
Speaker 2 (00:44):
That is the number to call to ask Todd your
state planning questions live on air right now.
Speaker 3 (00:51):
Usually get through two maybe three calls, so.
Speaker 2 (00:53):
Get calling early and often in order to make sure
your call is taken. Here again, eight eight eight to
zero five two two sixty three is the number. One
more time. It is eight eight eight to zero five
two two six three. Mister Lutsky, how are you doing today?
Speaker 3 (01:13):
I am never better. How are you good?
Speaker 2 (01:16):
Trying to plan some some summer trips and stuff like that.
Oh yeah, wife and I are considering a trip to
Mount Everest. She wants to color her hair at the
top of it. Yeah, she's willing to die on that hill. Todd,
I want to talk a little bit about uh, life estates. Okay,
(01:37):
Let's say that I am someone who has reserved a
life estate in a property. Okay, and I end up
going into a nursing home, all right, but not just
a property on your home, my home on my home. Ahead,
what happens to my home in that case? As far
as leans against it, equity, you need to be used.
(01:57):
How does how do things work from that perspective?
Speaker 4 (02:00):
So, as we've said before, there are two ways to
sort of do a life estate. A right way and
a wrong way, is what I like to say, But
I should say one is less bad and one is bad.
Speaker 3 (02:11):
So the way to do it is in your example.
Speaker 4 (02:16):
We're taking the house and we're putting it in the
hands of the children, and we're reserving the right to
live there, which is one way to do a life estate.
Speaker 3 (02:25):
Sure, so there are benefits.
Speaker 4 (02:27):
I don't want to make it sound like there's no
benefits to doing a life estate. There certainly is and
are benefits, one of which is what you said. Let's
say you put this arrangement together and you make it
that five years. Remember that that's that waiting period that
you really there's only a very few ways to ever
avoid that. But so for the most part, you're gonna
(02:48):
have to wait five years in order for it to
be protected from the nursing home. But if you set
it up and get beyond that waiting period, and in
your example, then to go to a long term care facility,
the house will be protected one hundred percent from the
nursing home.
Speaker 2 (03:06):
What about on the other side of that transaction, what
happens if I've transferred the property to my kids, and
let's say that one of them runs into some kind
of legal situation where they have a creditor who's looking
for money from them, or let's say that you know,
they need liquidity because something went wrong in their business
(03:27):
and they need to sell that property. How do things
work if they run into financial trouble.
Speaker 4 (03:32):
Yeah, I think it's a great question, because you've got
to look at a life estate from all angles, right
from all sides of this equation, and and the kids
side of this equation is where some of the problems
come in. While we just discussed a benefit, I think
some of the problems would be, you know it is
going to technically be exposed to that kid's creditors right away.
(03:54):
Why because they do own it. You made a completed
gift of a future interest. Now, good news for the
life tenant. The life tenant that they can't move against
the life tenant, so they will have that confirmed right
to live there. They won't lose the house to that creditor. However,
that child will have to deal with that creditor. Let's say,
(04:14):
for an example, it's a divorce. If it's a divorce,
at that moment, that child going through the divorce might
have to say to the soon to be ex spouse, Okay,
I'll tell you what. Here's the value of the home.
I'm going to keep the home to protect my mom,
and I'm going to pay you, you know the value,
(04:35):
your half of the value of that home, or just
allocate asset. So to me, it's still a problem for
the creditor. So I don't love it for that reason.
Speaker 2 (04:44):
Talking with Todd Watski from the law firm of Cushing
and Dolan. If you've got a question to ask Todd,
this is your opportunity, live on air right now, still
room on the phone lines at eight eight eight two
zero five two two sixty three. That is the number
to call to ask your questions again, eight eight eight
to zero five two two sixty three. We're gonna take
(05:06):
a quick break here, but when we come back, it
is right to your questions with Todd.
Speaker 3 (05:11):
That number one more time is.
Speaker 2 (05:13):
Eight eight eight to zero five two two sixty three.
Speaker 1 (05:18):
Ask Todd with Todd Letsky every Wednesday at ten thirty
only here on the Financial Exchange Radio Network. Todd Letsky
answers your questions about a state and elder life planning
every Wednesday at ten thirty right here on the Financial
Exchange Radio Network.
Speaker 3 (05:45):
All right, let's get to your calls with Todd. Let's key.
Speaker 2 (05:49):
First up, we've got Jimmy in Provincetown. Jimmy, what is
your question for Todd?
Speaker 5 (05:57):
Hi? Todd? How you doing? Never be question in regards
to when we sell the property in the trust? Yeah,
the taxation? If you on the capitol game, would the
trust pay it or do would the beneficiary pay it
after the assets are distributed.
Speaker 4 (06:14):
So so Jimmy remind me, just because there's lots of
Jimmy's are are you? Is this my trust that we
did or is it another person's irrevocable trust?
Speaker 5 (06:26):
Well, we did one for my mother, and then when
she passed away, we did a similar one for me
and my brothers and sisters. So I'm the trustee and
my brothers and sisters, uh beneficiary.
Speaker 4 (06:39):
And so okay, so what you're saying is you're my client. Yeah, okay,
I just needed to know that so that I can
you know, because then I know it's my trust. If
it was someone else's trust that I didn't draft, it
would be harder for me to answer the question. So
now that I can tell you that it's our trust,
and so your your portion of the property? Did you
(07:03):
you said your brothers and sisters inherited this property?
Speaker 5 (07:07):
We all did, so, y'all?
Speaker 3 (07:10):
Yeah, what percent do you own?
Speaker 5 (07:13):
I have a forty percent interest and.
Speaker 4 (07:15):
Your forty percent interest we put into an irrevocable trust
for you.
Speaker 3 (07:19):
Correct.
Speaker 5 (07:21):
I don't think so. I think it was just just
just don't I don't know if it was irreplicable or not. Oh,
so we can really do a flea trust like that?
Speaker 4 (07:31):
Oh so again, Jim, In order for me to answer
the question, I kind of need to know what kind
of trust we did for you. Just hard for me
to remember, right, you know, off the top of my head.
So I'm going to give you two answers. If we
did an estate plan together, I can assure you that
I would have transferred your interest in the property into
(07:51):
a trust, okay, And and the ownership your only your interest,
though not not the other chill other siblings. I would
have transferred your interest into a trust. That trust would
have been either revocable or irrevocable, depending on what your
wishes were. So when we met, was one of your
(08:12):
wishes to protect assets from the nursing home in case
you got sick in the future.
Speaker 5 (08:18):
I don't think we did a trust for me.
Speaker 4 (08:20):
Oh so, then you're we're probably not a client then,
in other words, other than I did it for.
Speaker 5 (08:24):
Your mom, right, you did it for my mom? Yeah?
Speaker 4 (08:28):
Okay, so your mom passed and you got forty percent interest. Yeah,
so I'm trying to understand your question. So now you're
selling that property? Yeah, okay, so you you went I'm sorry,
would you say.
Speaker 5 (08:43):
We're in the process of selling the property here on
the cave.
Speaker 4 (08:46):
Right, So you and your siblings are selling the property yep.
And you and your siblings are signing any purchase in
sale agreement in your own name, correct, yes, okay, So
there's no true trust involved here at all, because I
thought in the beginning you said you were selling it
from a trust and I might have misheard that. So
(09:07):
you're actually just selling it from your own name, correct, Yeah, okay,
So the answer is on the date of your mom's passing.
That property was fully included in her estate for estate
tax purposes, So like, when did she pass She.
Speaker 5 (09:24):
Passed in to sixteen, March fifteen to sixteen.
Speaker 4 (09:31):
So of twenty of twenty twenty four, twenty twenty five.
Speaker 5 (09:38):
She passed in twenty sixteen.
Speaker 4 (09:41):
Oh, in twenty sixteen, okay, So if she passed in
twenty sixteen, now that was quite a while ago, so
I'm sure there's been some appreciation. But the basis, the
cost basis for you and your siblings will be whatever
the value of that property was on the date of
her death in twenty sixteen. So you've got to go
(10:01):
back and get a back dated appraisal for that find
out what it was worth, then that's your basis. Then
whatever it has grown to from that day, the difference
between what you sell it for today and what it
was worth in twenty sixteen, plus any capital improvements you
(10:23):
might have made or your siblings have made to the
property since twenty sixteen is your basis. So date of
death value plus improvements is basis minus what you sell
it for today capital gain. And if you don't live
there as your primary residence, you're not going to get
any capital gains exclusion. It'll just be the capital gains
(10:46):
tax associated with that. So you know, good news in
the sense that at least you got as much of
a basis step up as you possibly could have by
doing the planning, or that your mother did the planning.
It's just now a function of paying the gain on
the future growth. So hope that helps, and good luck
with the sale. So, folks, you know, that's a great
(11:07):
question because capital gains come up all the time when
we talk about life estates, and so if you've got
a life estate and you're wondering if you go to
sell it, what the tax ramifications are, really need to
get the guide right, because this is one of those
things where you're going to find out that there are
sometimes negative capital gains tax consequences associated with selling a
(11:29):
home in a life estate arrangement, especially when the remaindermen
are the children. This guide not only talks about those issues,
it talks about the two ways to create a life
estate and other gift tax, income tax, estate tax, creditor
issues associated with loss of control. Another question associated with
(11:52):
these life life estates. So if you got one, or
you're thinking about doing one, call and get the guide
and learn what you're getting into. Eight six six eight
four eight five six nine nine or Legal Exchange Show
dot com again eight six six eight four eight five
six nine nine or Legal Exchange Show dot com Todd.
Speaker 2 (12:14):
Before the break, we were talking about potential downsides to
you know, kind of what you might see in a
life estate if things go wrong. We covered a couple
examples there. Huh, what other potential issues are there with
the use of life estates in a state plan? Is
kind of like a core piece of one.
Speaker 4 (12:33):
Yeah, and I think maybe it's it's it's a great
follow up question really to Jimmy who just called, because
I think we probably should spend some time since he's
selling a piece of property, and I can kind of
compare what he did or what his mom did and
what we did for them versus a life estate situation.
So he's selling piece of property after mom passes. So
(12:55):
that's a little different. Full step up. No problem in
the gain world except for the future growth.
Speaker 3 (13:00):
But if you're living.
Speaker 4 (13:01):
Right, people set this stuff up and they could be
sixty five, you know, nine five years later they want
to say, you know, now I'm seventy and I want
to move to Florida. Oh well, I want to sell
my house. Sure they should be allowed to do that.
But if you gave the house to the kids and
reserved a life estate, here are some steps that you
have to go through in order to sell it. First,
(13:24):
you have to ask the kids okay, well I don't
want to have to do that. That's problem number one.
Speaker 3 (13:29):
Number two.
Speaker 4 (13:30):
Let's assume that they're nice kids and they say, yeah,
we're going to sell it. Now both people have to sign,
the children and the life tenant. Then we have to
go to an IRS table based on the life tenant's
age in the month in which the life tenant is selling,
find the applicable federal interest rate in effect, so that
we can determine what percentage value of the proceeds from
(13:55):
the sale get allocated to the life tenant and what
percentage proceeds from the sale get allocated to the children.
I can assure you the older you get, the smaller
the percentage proceeds of the sale will be to the
life tenant. So if you're seventy five when you're selling this,
you might only get twenty twenty five percent of the money.
(14:17):
So if you sell the house and you only get
twenty twenty five percent of the money, I suspect you
don't have enough money to buy your new house in Florida.
So now you need to ask the children to give
you back money that they got. Well, that's not a
good place to be. In addition, what about the income tax? Oh,
(14:38):
I forget that for a minute. The kids might have
a gift tax when they give back the money to
mom and dad if they give it back, So that's
a problem. But more importantly, what's the capital gains tax? Well,
the life tenant would get to a capital gains exclusion
two fifty if you're married. I'm sorry if you're single,
five hundred thousand if you're married. But the children don't
(15:02):
if they don't live there, they don't get a remainder interest,
or they don't get a capital gains exclusion, They're going
to have to pay higher capital gains tax than you
would if we got the whole capital gains exclusion for
mom and dad.
Speaker 3 (15:14):
Folks. That's just one example of a life estate issue.
Mister Lutsky, thank you so much for joining us today.
Always a pleasure.
Speaker 1 (15:22):
This has been Asked Odd on the Financial Exchange radio network.
Ask Todd with Todd. Lutsky has been presented by Cushing
and Dolan, serving Massachusetts and New England for more than
thirty years, helping families with the state and tax planning,
Medicaid planning, and probate law. Call eight hundred and three
nine three four thousand and one or visit Cushingdolan dot com.
The views expressed in this segment are solely those of
(15:43):
Cushing and Dolan Armstrong Advisor. He does not provide any
legal or tax advice. Please consult with your legal or
tax advisor on such matters. Cushing and Armstrong do not
endorse each other and are not affiliated
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