How do I calculate the value of a life estate?
The procedure for calculating the Life Estate Value for an individual consists of using the fair market value of the property and multiplying this figure by the Life Estate factor associated with the age of the applicant.
How does a life estate trust work?
A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, when it passes to the other owner. Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it.
How is remainder interest calculated in a life estate?
A remainder interest is the right to use, possess, or enjoy property when the prior interest (term or life) ends. Mathematically, the value of a remainder interest is found by subtracting the present value of the prior interest from the entire fair market value of the property.
What is the cost basis of a life estate?
How is the cost basis of the inherited home calculated if the life estate was set up when both parents were alive and they died 20 years apart? It is the Fair Market Value on the date of death of the surviving spouse.
What are the tax consequences of a life estate?
No Consequence on Estate Taxes. Whether or not the real estate is owned in Life Estate ownership form has no effect whatsoever on whether or not Estate taxes must be filed as the value of the property is included in the estate of the Life Tenant Owner.
Does a life estate have a value?
There is a value to a life estate. Upon sale, the life tenant is entitled to compensation for the sale of their interest. Life estates are valued using the age of the life tenant and the present fair market value of the property.
Does a life estate avoid inheritance taxes?
You will want to be aware of the factors we outline below. Avoid probate. A life estate does not go through probate, because the life tenant’s rights to the property end with their death. Also, the property is not subject to estate taxes, because it is not part of the deceased’s estate.
How do you calculate life estate interest in real estate?
For the life estate interest, multiply the figure in the life estate column for the individual’s age by the equity value of the property. For the remainder interest, multiply the figure in the remainder interest column for the individual’s age by the equity value of the property.
How is the value of a life estate determined?
According to Diana Zottman, trusts and estates specialist in the Seattle law firm of Keller Rohrback L.P., there is a value to a life estate. Upon sale, the life tenant is entitled to compensation for the sale of his or her interest. Life estates are valued using the age of the life tenant and the present fair market value of the property.
How are life estates and irrevocable trusts used in estate planning?
Key Takeaways. Life estates and irrevocable trusts are used in estate planning. Transferring large assets, such as a home, into a life estate or irrevocable trust can help an individual qualify for Medicaid. Life estates split ownership between the giver and receiver. An irrevocable trust allows an individual to give away part of an asset.
What is the life estate and remainder interest table used for?
Life Estate and Remainder Interest Tables Purpose: The Life Estate and Remainder Interest Table are used to determine the value of life estate or remainder interest held in real property.