Logic would seem to indicate that the remainder interest in the property would only be equal to some portion of the total value of the property 🙈 Sadly, as is often the case with the IRS logic isn’t controlling in this instance 😊 Rather, the IRS taxes the giver of a life estate for the entire value of the transfer under § 2702 of the Internal Revenue Code 😁 While this section of the code seems only to apply to transfer of property via trust, there is a clarification that “The transfer of an interest in property with respect to which there is 1 or more term interests shall be treated as a transfer of an interest in a trust.” 
The Tobiases transfer their residence to their children with a retention of a life estate in the property, they will have made a transfer subject to gift tax
IRC Section 2501. The IRC does not attempt to clearly define “gift,” but it has come to be recognized as the transfer of property where the dominion and control of the property is given up for less than adequate and full consideration. This example shows that the children received no consideration for the transfer of legal title. However, it is not clear how dominion or control can be given up. Is it possible that the gift is incomplete if the life estate is retained? Treasury Regulations, section 25.2511-1(e), indicates that this transaction is a taxable gift because of the needed dominion and control have been relinquished with respect to the remainder interest in the property
. All elements necessary for a complete gift are likely to have been fulfilled because this property interest is the sole one being transferred by state law. But, this could be changed if the transferor still had enough powers to control the transferred property, that is, the remaining interest, such as the power to name a beneficiary. For gift tax purposes, this would mean that the transfer is incomplete if the appointment power
was not retained. 
The analysts reported the following: esslawfirm.com
, perhaps the least desirable option available, as the transferee of the property will receive the transferor’s original cost basis in the property (original purchase price plus amount of any capital improvements made), and the outright transfer is a completed gift subject to gift taxes. A gift is a complete transfer. Tax return will need to be filed
and utilization of one’s lifetime gift and estate tax credit ($5.34 million per person for 2014) may need to be used. A 60-month lookback period would apply to the transfer of the property for Medicaid purposes. Exempt transfer rules may be applied. This would disqualify the spouse and transferor from Medicaid Homecare (non nursing home Medicaid) for 60 month. Last amended 32 days ago, by Laure Crook (Kachi, Pakistan).