Q–A man died and left a life estate to his wife of 18 months. Now it’s two years after his death and she wants to move out of the house. What are the rights of the widow and the man’s two children?
A–The recipient of a life estate has the right to live in the home until she dies. She also is entitled to sell her right of occupancy.
A life tenant has the right to rent the property and keep any profits she makes. She also has the right to not rent or not occupy the property. There are, however, certain responsibilities.
The life tenant must pay property taxes and insurance and make reasonable repairs to the property. She is prohibited from acting in a manner that would destroy the property. A life tenant need not make any improvements to the property.
These rights and responsibilities continue until the death of the life tenant. The recipients of the remainder–the children, in this case–must wait until the life tenant’s death to receive unencumbered title to the property.
Q–Is it a good idea to hire management for rental property? I have been struggling with real-estate agents who charge a month’s rent for their services and provide unsatisfactory tenants.
A–The quality of property managers varies widely. If your current manager does not perform to your satisfaction, hire another manager.
The alternative to using the services of a property manager is to take over the management duties yourself. The key is that you need to do as good a job as, or better than, the hired manager.
To be a good property manager, an investor must be willing to devote sufficient time and effort to the job. I believe that investors owning fewer than 12 rental units are best served by managing the properties themselves. Larger rental complexes require more time than most investors can take away from their primary job.
Q–We already used the over-age-55 capital gains tax exemption, but it was less than the allowable $125,000. Can we claim the unused balance as an exemption against profit from our next real estate sale?
A–Once a taxpayer is older than 55 and elects to use the one-time exemption from the sale of a principal residence, there is no second bite of the apple.
For example, if only $50,000 of gain is excluded from taxation, the $75,000 balance of allowable exemption is gone forever.
