Does the transfer of a remainder interest from a life estate require that a gift tax return be filed?
Yes. Under Code Section 2511(a), any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, is subject to gift tax (Reg. Section 25.2511-1(c)). In addition, the transfer must be complete and irrevocable before the gift tax applies. For example, a donor was deemed to have made an incomplete gift when he transferred his personal residence to his sons and retained not only a life estate in the property, but also the right to have his personal residence transferred back to him (PLR 200308046). A gift of a future interest, such as a remainder interest in a life estate, is not eligible for the annual exclusion for gifts, currently $12,000. Calculating the value of the gift to be reported entails applying to the fair market value of the property the appropriate remainder factor based on the age of the transferor and the applicable IRC Section 7520 rate for the month in which the gift was made (see IRS Publicat
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