A form of property ownership involves dividing rights: one party holds the right to live in the property for their lifetime, while another party ultimately inherits the property upon their death. The value of the asset for tax purposes can be significantly altered when the holder of the life estate passes away. For example, a parent might transfer ownership of their home to their child but retain the right to live there until their death. Upon the parent’s death, the child inherits the property, but its value is adjusted for tax purposes to its fair market value at the time of the parent’s death.
This adjustment in value can drastically reduce capital gains taxes if the property is later sold. This is particularly beneficial for assets that have appreciated significantly over time. Historically, this feature has been used as a tool for estate planning, allowing for the transfer of wealth while minimizing potential tax liabilities for heirs. It enables families to pass on property with reduced tax burden, preserving more of the asset’s value for future generations.
