My mother deeded her three family house over to my brother and myself
in 1995 while reserving for her a Life Estate. She has not lived in
the house for the last 10 years and has managed the house for the past
20 years. She is 82 and now doesn't want to manage it anymore. Since
the house is quite a distance from both me and my brother we are
considering exchanging the house via "Like Kind Exchange" (1031). We
would like to keep the same arangement i.e. me and my brother as
tenants-in-common and my mother retaining a Life Estate. Can this be
done? Would it still have the asset protection from Medicaid without
the 3 year lookback? Upon the death of our mother would we obtain the
house with the stepped up basis?
Many thanks,
Marty

My mother deeded her three family house over to my brother and myself
in 1995 while reserving for her a Life Estate. She has not lived in
the house for the last 10 years and has managed the house for the past
20 years. She is 82 and now doesn't want to manage it anymore. Since
the house is quite a distance from both me and my brother we are
considering exchanging the house via "Like Kind Exchange" (1031). We
would like to keep the same arangement i.e. me and my brother as
tenants-in-common and my mother retaining a Life Estate. Can this be
done? Upon the death of our mother would we obtain the house with
the stepped up basis?

On 30 Oct 2004, martin.burger@pobox.com (Martin Burger) wrote:
Query whether you will have structured the transaction to address the
IRC 1031 requirement summarized in the IRS' 1031 FAQ that says in
part,
Sale or Trade of Business, Depreciation,
Rentals: Sales, Trades, Exchanges
Can you sell rental property and reinvest it
into rental property without paying capital
gains tax?
No. A deferred exchange will be treated as
a sale rather than a tax free exchange if the
taxpayer actually or constructively receives
money on other property in full consideration
of the relinguished property. However, rental
property may be exchanged directly for other
rental property of like kind. Gain realized
from such an exchange is deferred. For
additional information on like-kind exchanges,
refer to Publication 544, Sales and Other
Dispositions of Assets.
and to the cited Publication 544, which says in part,
Property Used Partly for Business or Rental
If you sell or exchange property you used partly
for business or rental purposes and partly for
personal purposes, you must figure the gain or
loss on the sale or exchange as though you had
sold two separate pieces of property. You must
allocate the selling price, selling expenses, and
the basis of the property between the business
or rental part and the personal part. You must
subtract depreciation you took or could have
taken from the basis of the business or rental part.
Query how for Medicaid elligibility purposes that would not be
fraudulent you would value your mother's life estate in the property
being transferred.
And at least in terms of Medicaid elligibility purposes, query why
your mother or you would want her to own what you suggest would be a
non-possessory life estate in income producing property you and your
brother (and, during her life, mother) would own for investment
purposes.