Mrs. Smith, an 86 year old New York resident recently entered a nursing home. Prior to that, she lived in Loudonville, New York, in a home that she and her husband purchased in 1963. Her husband died in 2006. She has two adult children and seven grandchildren. Her children live in Saratoga Springs, New York, with their families. In 2010, Mrs. Smith revised her Will to distribute her entire estate equally to her children at her death. She nominated her son as Executor, as well as Health Care Agent and Power of Attorney. She nominated her daughter as alternate for each of these fiduciary positions. In order to avoid probate, she transferred legal title of her Loudonville residence by deed to her children, but retained a life estate, i.e., exclusive legal possession of the residence for life. Given Mrs. Smith’s health problems, it is unlikely that she will ever be able to live in her residence again. Neither of her children desire to take possession of the residence and they would like to sell the residence as soon as possible. Mrs. Smith’s children recently stopped by your office and would like to know the tax implications of the sale of the residence. What is your advice? What are the preliminary facts and issues?