The Life Estate Deed

Updated August 3, 2026. Quick answer: a traditional life-estate deed gives your children the house now while you keep the right to live there for life. The step-up in basis is generally preserved — there is a clear statutory route to it — but the deed is irrevocable, the gift of the remainder happens immediately, and you cannot sell or mortgage the house without your children’s agreement.

Why the step-up survives: the three-link chain

The claim that a life estate preserves the step-up is true, and it is worth seeing exactly why, because the reasoning is what tells you when it might not.

Link one — what you kept puts the house back in your estate:

The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death—(1) the possession or enjoyment of, or the right to the income from, the property

— IRC 2036(a)

Link two — the regulation addresses a personal residence directly:

D transferred D’s personal residence to D’s child (C), but retained the right to use the residence for a term of years. D dies during the term. At D’s death, the fair market value of the personal residence is includible in D’s gross estate under section 2036(a)(1) because D retained the right to use the residence for a period that did not in fact end before D’s death.

— 26 CFR 20.2036-1(a), Example 2

Link three — being in the gross estate is what confers the new basis:

1014(a) In general: Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be—(1) the fair market value of the property at the date of the decedent’s death…

— IRC 1014(a)(1); IRC 1014(b)(9)

So: you retained the right to live there, that pulls the house into your gross estate, and property required to be included in the gross estate takes a date-of-death basis. Each link is required; the conclusion rests on all three.

The hedge, honestly. Section 1014(b)(9) is not unconditional — it carves out annuities and property covered by other paragraphs of the same subsection. And we verified the three links, not the whole universe of provisions that could bear on a particular life-estate and remainder arrangement. The route is real; whether it reaches your specific facts is a question for a professional, and this is an irrevocable deed.

The three ways it differs from a lady-bird deed

• It is irrevocable. A lady-bird deed leaves you free to sell, mortgage or change your mind. A traditional life estate does not.
• The remainder is a completed gift now. That can require a gift-tax return on the value of the remainder interest — filing is not the same as paying — and it starts the Medicaid clock on that transfer.
• You need the remaindermen’s consent to sell or mortgage. This is the trap. If you later need to sell to fund care, every one of your children has to agree and sign — including one who is estranged, or bankrupt, or divorcing, or who simply says no. And the proceeds must be split according to the interests.

That last point is the one that turns a tidy plan into a crisis, and it arrives at exactly the moment flexibility matters most.

When it still makes sense

Where your state has no transfer-on-death deed and does not recognise a lady-bird deed, a traditional life estate may be the only instrument that keeps the step-up while avoiding probate. That is a genuine use. But if your state offers either alternative, they usually dominate it, because they achieve the same result without surrendering control.

Related: the whole decision · lady-bird deeds · the TOD alternative.

General information drawn from the United States Code and the Code of Federal Regulations, not legal or benefits advice. Social Security rules and figures change; every figure here carries the period it applies to. Your own earnings record and the correspondence you have received govern your case, and SSA is the only source for either. We sell nothing and we are not affiliated with the Social Security Administration.