Such a gift isn’t always the best or the only option. Future use of the property is key, said Rick Polenske, Boise, Idaho-based managing director and principal at Robertson Stephens Wealth Management. “If the goal is simply to move value from one generation to the next before death, use of a charitable trust or a donor advised fund could help,” he said.
If this is a vacation property but the parents want their children to take over responsibility for it, trust, partnership or simple rental options might work better, Ross said.
A less-familiar variation on this strategy involves using a discount rate for property that isn’t easily marketable. “An example of this would be property inside of a family LLC structure,” said Jason Field, CFP and financial advisor at Van Leeuwen & Company in Princeton, N.J. “You could use a discounted value for the current market value due to the illiquidity of the property and gift part of the equity. In some cases, the discount rate that the IRS allows can be substantial.”
This gift can use up some of the lifetime exclusion; a large gift of equity may be a better solution.
“Many wealthy families I work with are accelerating gifts to family members in order to take advantage of record-high lifetime gift and estate tax exemptions,” Orbach said. “For very wealthy families, the opportunity to reduce their estate tax exposure may outweigh the potential loss of step-up basis.”
Any way you approach what can seem like an overtly generous financial move, “this can be a much deeper conversation than it looks like in most cases,” Polenske said.