3 Real Estate Transfer Strategies That May Be Right for You

This is the third blog in a four-part series that focuses on estate planning strategies.

The estate and gift tax exemption is $11.4 million per person ($22.8 million for a married couple) in 2019. Depending on your circumstances, gift planning with real estate can be an effective way to take advantage of a large exemption amount without hurting your liquidity. Of course, there are many items to consider when transferring a piece of property to others, including the right structure, the terms, and the tax benefits. Fortunately, a few key strategies may help you transfer real estate in a tax efficient manner.

QUALIFIED PERSONAL RESIDENCE TRUST (QPRT)

Qualified personal residence trusts (QPRTs) can significantly reduce taxes on the transfer of the property. Key characteristics of this strategy include:

• Grantor transfers a residence to the QPRT, but retains the right to live in the residence rent-free for a certain period
• The value of the right to reside in the residence is subtracted from the value of the residence for gift tax purposes
• If the value of the residence appreciates, the appreciation passes to the QPRT beneficiaries free of additional transfer taxes
• If the grantor dies before the end of the QPRT term, the value of the grantor’s interest will be included in the grantor’s estate

GIFT WITH LEASE

A gift to a trust with lease back is a type of transaction that removes property from the grantor’s estate, but allows the grantor to continue to use the property. Key characteristics of this strategy include:

• Property can be transferred to the next generation through a trust or another entity that is owned by either the trust or the children
• The grantor pays rent for the continued use of the property, and rent can be used by the new owner for ongoing carrying costs of the property

DONATION TO CHARITY

Giving more, and giving more efficiently, is one of the primary reasons many people consider donating real estate to a favorite charitable organization. Key characteristics of this strategy include:

• Real estate donations can help families achieve their philanthropic goals more effectively, as donating highly appreciated property can be a tax efficient way to give more to charity
• Selection is important, as not all charities can accept real estate
• Real estate often can be donated to a donor-advised fund to support various charitable causes over time

A gift of real estate—especially a property that a family considers to be part of its unique heritage and family identity—can be a strategic way to achieve numerous goals while maintaining liquidity. For more information on efficient ways to transfer your family’s real estate assets, visit our Lifetime Gift Planning resource page.

Theresa Marx is a senior wealth strategist for CIBC Private Wealth Management in Chicago, with 15 years of industry experience. In this role, she is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high net worth clients.