estate planning question(s)

I am currently in Georgia, and my parents live in Tennessee. They own several acres of land, and they are looking at options for passing that to me. The are considering gifting it to me with life estate, but they are getting conflicting advice on the pros and cons of this vs. leaving the land to me as in their wills. Here are a few of my questions:

1. If they gift the property to me with life estate, and after their deaths I decide to sell it, would the basis be the value of the property at the time the life estate was done or at the time of death? There would be no taxes due on my part as a result if the gift unless I later sell the property, right?

2. Am I right in thinking that, if they do not gift it to me, the basis for me would be the value at the time of death?

3. Am I right in thinking that, in either scenario, I'll have to pay capital gains tax on any gains if I ever sell the property?

Any clarification you can provide on these issues would be extremely helpful.

1. There is no step up in basis for a gift. The basis would be your parents current cost basis (what they paid for it + improvements). The person receiving the gift is never responsible for gift taxes, that responsibility falls upon the donor of the gift. There is a $12000 annual gift exclusion for each parent ($24000) and a lifetime gift exclusion for each parent of $1,000,000, or $2,000,000 total. Another thing to consider is that the property may be reassessed under the new title and increase annual property taxes.

2. You are correct. Should you inherit the property, you will recieve a full step up in basis and your cost will be the Fair Market Value (FMV) at the time of death of last surviving parent.

3. In scenario 1, you will pay exponentially more capital gains tax because the basis may be very small. In scenario 2, if you inherit the property and immediately sell, your gains will be virtually non-existent or negligible because you received a step-up to FMV. ANY gains realized from your sale of the property will of course be your responsibility and taxed accordingly.

Why don't they sell it to you and use their annual gift tax exemption to forgive you of the payments you'd make for buying it from them?

Just make sure they sell it to you for fair market value and the interest rate is reasonable.

They might even establish a note that stops/cancels upon their death.