My parents transferred title in their home to me and my two siblings. They were told that this would not only eliminate probate issues but also protect the house from being swollowed up by medical costs.

Mom passed away leaving only Dad with the life estate. Now dad is in an assisted living facility. We want to take out a mortgage or home equity loan on the property to pay for Dads care. The house is completely paid for.

The bank refuses to give me a mortgage citing the existence of the life estate on the title. I was advised by ther bak to have my father waive the life estate. However, I was told that by waiving the life estate (or by having him sell it to me) then upon his death we children would lose the benefit of the "stepped up nasis" for the house and would get stuck paying huge capital gains taxes on the difference between what my parents paid for the house (practically nothing) and what we sold it for after my dad dies (it is now quite substantial in value).

Is there no way to draw the equity out of the property with a life estate still in existence? The property is in New York State.