Q: When my parents got old, I moved into their house to take care of them. When they died, my brother inherited the house. He said I could continue living there until I died as long as I paid the taxes and maintained it.
But he would not give me a “life estate” because he said he would have to pay gift taxes. When I die the house is his to sell or whatever. Why does he have to pay gift taxes?
The house is in Vermont and the Vermont Department of Taxes says I have to be taxed at the non-resident rate because he will not change the deed to include me as a having a life estate interest.
A: You’ve asked a good question. As a little background, when someone receives a life estate in a home, that home is theirs for all practical purposes. They have the right to use the home and, in many cases, do as they wish with the property as long as they live. The only thing the person can’t do with a life estate is sell the home or transfer the home to someone upon the death of the life estate holder.
I would suggest you talk to an estate planner to figure out a way to get you the life estate. Your brother might be right with respect to the tax consequences of the life estate gift in the home. His issue is not with the Vermont Department of Taxes; his issue is with Uncle Sam. If you give someone a gift in any given year of more than $12,000, the IRS requires certain forms to be completed and it triggers certain tax rules.
Your brother seems to want to avoid this issue. The estate planning attorney might have some ideas as to what can be done to get you the life estate and give him (or his estate) the home upon your death. There are many ways of transferring title of the home to you as a life estate while not triggering the tax consequences. Some of these issues can be addressed if title to the home hasn’t yet changed hands from your parents to your brother.
You and your brother need to talk with an estate planning attorney to work through all the issues. If you don’t know a good estate planning attorney, contact your local bar association for a referral.
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