A life estate is a special ownership arrangement that allows you to share a property with someone else. Here’s how it works:
Ownership Interest: In a life estate, each person involved has an ownership interest in a piece of real estate, typically your primary home. However, their ownership rights occur over different time periods:
Life Tenant: The person who holds the life estate is called the life tenant (which would be the father) since he is the homeowner. As the life tenant, you own the property during your lifetime.
Remainderman: The other person (the son) in the life estate is called the remainderman. They have an ownership interest in the home, but they can’t technically own it until thelife tenant passes away. When the life tenant dies, the home automatically becomes the remainderman (son)
How It Works: Let’s say father owned a home and want to leave it to son. He establishes a life estate deed, designating himself as the life tenant and the son as the remainderman. During the father's lifetime:
he can continue to live in the home.
he's responsible for existing mortgage obligations, property taxes, homeowner’s insurance, maintenance, and repairs.
he can make improvements or even rent out the property.
However, certain actions (like taking out a mortgage loan against the property) require the remainderman’s consent.
Selling the home is also restricted since the remainderman has an ownership interest.
Upon father's death, the property automatically transfers to the remainderman.
However, what name was on the title? it should have been registered in the name of the life estate or upon father's passing depending on the provisions in the trust, the son's name.
If properly titled the son would have owned it on the date of his death. the residual beneficiaries/his estate would receive a step-up in basis. if it wasn't properly titled, I would be of no help in giving you an answer as to basis to use.
how soon after death was it sold? if shortly thereafter I would say the FMV was the gross sales price. but you still have to report it. most likely a 1099-S will be issued for the sale.
