is useful to the heirs as a means to increase the property’s value following the death of the decedent. A life estate can also help avoid probate, which is a legally required process to transfer the property from the deceased to his descendants, but which can be sidestepped by using a life estate instead, since it is not technically an inheritance. A life estate can also be called an “instant transfer.” There are, of course, tax implications when using a life estate. Section 2036 of the Federal Estate Tax Code treats life estates as a gift. The gift tax must only be paid if the value exceeds a specified amount. If the property is sold after the end of a life estate, there is no net gain that needs to be reported on taxes because of the value step-up. In case your total property value is more than $1 million dollars or if the property is in a different country or state, though, you should absolutely take a cautious approach to drafting a life estate and retain the services of an attorney.
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