Legal Question in Real Estate Law in California

A family considering setting up a life estate needs to get personal tax advice from a tax planning professional who can counsel the family on gift, capital gains and estate taxes. Life estates are sometimes useful in estate planning and MediCal cost avoidance, but often not a family's best choice. I believe the only tax likely to be payable on April 15th following the year of execution of a life estate will be gift tax if the lifetime giving limit is exceeded, but the other taxes would kick in upon the life tenant's death. Your tax advisor may tell you that setting up a life tenancy will forfeit the heirs' rights to a step-up in basis for capital gains purposes. Also, a life tenancy can backfire on the family if the parties don't die in the predicted order. So, treat a life tenancy as one possible estate-planning tool, useful in a minority of situations but probably not as useful overall as a living trust.