Level 2

Life estate farm reaquired after life tenant's death- basisclients

Forum|Forum|1 year ago
January 5, 2025
3 replies
15 views

My client gave her brother a life estate in her farmland she inherited from her mother in 2013. Is is farmland used for orchard nut production, farm rental and soon to be residential rental. The life estate gave brother all income and control until death 11/1/23. My client reaquired the property subjected to a complete step up in basis as far as I understand. She had a date of death appraisal. But is is pretty vague because the history of the walnut production died with her brother and his widow is MIA.

The orchard was planted by my client's father 26 years ago and is mature and near the end of productive life. I can't find anything on how to place the depreciation value of this 50 acre orchard. It is being leased out under a production of net income arrangement.

The 162 acre property had been seriously neglected for years due to health and pure neglect. His widow took the earnings and neglected the maintenance. She's $500,000 in already against $65,000 of income. Any help, code, Revunue ruling or case history would be appreciated. I've done farms many years ago (40) and know the basics. Will pay for consultation if needed.

T

TaxGuyBill

Level 15

@Denise Taxes 54 years wrote:

My client gave her brother a life estate in her farmland she inherited from her mother in 2013.

The life estate gave brother all income and control until death 11/1/23.

My client reaquired the property subjected to a complete step up in basis as far as I understand.

I don't really understand this Life Estate.

Your client inherited the land in 2013.

A Life Estate would generally mean that she changes the title to her brother but SHE has rights to all income and expenses until SHE dies. Not him. And the step up applies if SHE (the giver, with rights to the property) dies. That is what is confusing.

Did she merely give him a gift of the land, and she inherited it from him when he died?

BobKamman

Level 15

It makes perfect sense to me. Did you miss the part about "the history of the walnut production died with her brother and his widow is MIA"? Mom leaves the orchard to Sis because neither of them like Bro's wife and the worthless stepchildren. But Sis doesn't want to kick Bro off the property, he's the one who knows how to manage it, so she tells him "you can live there the rest of your life, but when you're gone so is Floozy. I get the property back for myself, to keep in the family." Because that's probably what Mom told her to do.

So I'm not sure why there would be a step-up in basis. She's owned the property since 2013. If she had given the brother a 10-year lease on it, her basis would have remained the same. Except who was entitled to depreciate those trees? Too early in tax season to consider such squirrelly questions.

D

Denise Taxes 54 yearsAuthor

Level 2

Except she gave up sole ownership of the property the day she agreed to give him the life estate, making her ownership tenants in common with her brother and a remainderman (beneficiary) at his death. It's the death thing that gives her the step up. If brother were kicked out due to violating the terms, which he did, before death, the life estate being terminated, my client would have the step up she got from Mom's DOD and not her brother's DOD ten years later.

This is what her estate planning attorney told me. "In simple terms, a remainderman is the person who will inherit a property or asset upon the termination of a life estate. A life estate is a form of joint ownership that allows one person (the “life tenant”) to remain in a house until their death, when it passes on to the remainderman.The entire property is inherited because she gave aware the entire right to use it and enjoy its income. The step up is only triggered by death.

We could both be wrong. After 54 years at this, I'm right less often than I used to be.

Denise

sjrcpa

Level 15

"She had a date of death appraisal."

It should have valued the orchard. If it didn't, she can probably go back to the appraiser and have it done.

But, agreeing with Bill, the facts don't make sense.

The more I know the more I don’t know.

qbteachmt

Level 15

I'm also trying to follow.

"My client reaquired the property subjected to a complete step up in basis as far as I understand"

You can't reacquire something you already owned. If it was her property and he was given "right to live there and operate it" then she still owned it. You don't inherit it because it was yours all along.

Was the property bifurcated? You mention 50 acres and also 162 acres.

How much longer is that production lease? If there is a lessee, wouldn't they have the production history? How would that die with the brother? Are there no records, not even filed with the County or State Ag?

It seems maybe the brother did the tax reporting on the property and not your client?

Once you get that clarity, it might help to know exactly what you are trying to solve for.

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