@Hal_Al wrote:
A life estate does not have to be explicitly established in the deed. Your mother probably had an "implied life estate." If so, that would give you the stepped up basis of an inheritance . There is case law on this.
One has to use extreme caution when relying on case law. For one thing, the IRS does not always accept, nor is it obligated to accept, the decisions of tax courts. Further, cases are fact-specific and may not have universal applicability.
For example, in at least two cases, the transferor (donor) continued to reside in the property but the expenses (e.g., property taxes, utilities) were paid by the donees (i.e., evidence demonstrating that there was some sort of "understanding"). Another case holding there was an implied life estate was overruled by the Second Circuit. In short, this is not an area of well-settled law particularly since certain state courts (relying on state law) have held that no life estate exists absent a grant or reservation of the same in writing.
I understand the Reg refers to an "implied understanding" but, again, militating against such an understanding are other factors relating to dominion and control pursuant to state law as well as specific facts and circumstances.
I would thus recommend consulting a local tax attorney for specific advice and guidance.
ADDENDUM: With respect to tax court cases (and even cases brought in the district courts), one needs to exercise caution concerning the result (holding of the court) not only on the facts but as to what precipitated the filing of the case. For example, I believe one will find that most, if not all, of the "implied life estate" cases were brought as a result of an asserted estate tax deficiency. In other words, the IRS was actually arguing that there should be an "implied life estate" so that the property would be included in the gross estate of the decedent and, as a result, additional estate tax would be due. Obviously, since positions taken by the IRS militate in favor of collecting more revenue, the results of any cases involving those positions should be viewed in that light.
