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Carol continued to live in the house after Tom’s passing but, in 2013, decided to add their five adult children to the title. They occupied it continually until 2012 when Tom passed away. Consider a married couple, Tom and Carol, who purchased their home in 1978 for $65,000. Example: Carol and Her Five Adult ChildrenĪ hypothetical example illustrates this. The parent gives a future interest in the property to their children because they do not take ownership until the parent passes away. Instead, they have given a future interest in the property to another beneficiary, who can take possession after the death of the tenant, who in our context is the parent living in the house. Thus, the party living in the house or possessing the property has a tenancy for an uncertain time, but they cannot sell it. What should be done now if a gift tax return was never filed?Ī life estate is the continued possession of property during one’s life while at the same time transferring it to another party or parties.Is it considered a life estate, even though the paperwork to formalize the transfer of a remainder interest was never completed?.When a parent transfers real estate to their children, yet continues to possess the property until their death, what are the tax consequences?.The family may ask the following questions. But the adult children treat the property consistently with the understanding that the parent has possession of the residence and is responsible for the costs associated with living in it. Let’s say that they fail to ask an attorney to draw up the paperwork, so there is no formal documentation of the life estate. Everyone in the family understands that even though the children technically own shares of the residence, their mom or dad will continue to live in the home until she or he passes. This action may be taken for the sake of convenience, wanting to be expedient in transferring assets after death. An elderly taxpayer often adds their children to the deed for their residence. For example, are the beneficiaries required to report the sale of the asset, which is typically real estate? This issue has implications for the beneficiaries’ income tax returns and raises the question of whether a late gift tax return should be filed. The question concerned how the beneficiaries holding a remainder interest should treat the sale of property after the individual holding an implied life estate passes away. Recently in the Tax School Facebook private group, an interesting question was raised regarding the transfer of real estate when an interest in the property is retained.