Real estate is one of the most effective vehicles for intergenerational wealth transfer — and with proper planning, it can pass to the next generation with dramatically reduced estate and gift tax consequences. Understanding the intersection of real estate investment and estate planning is essential for investors who want to preserve and transfer the wealth they have built.
The Step-Up in Basis
When real estate passes through an estate at death, the heir receives a “stepped-up” basis equal to the fair market value at the date of death. This means all the appreciation that occurred during the decedent’s lifetime is never subject to capital gains tax. For highly appreciated real estate held for decades, the step-up in basis can eliminate millions of dollars of potential capital gains tax — making hold-to-death a compelling strategy for older investors with low-basis properties.
Family Limited Partnerships and LLCs
Family limited partnerships (FLPs) and family LLCs allow parents to transfer real estate ownership interests to children at discounted values — because minority interests in a private entity are less liquid and have less control than outright ownership. Valuation discounts of 15–35% are commonly supported for FLP interests, allowing more value to transfer within annual gift tax exclusion limits or the lifetime exemption.
Irrevocable Trusts
Grantor trusts, Qualified Personal Residence Trusts (QPRTs), and Charitable Remainder Trusts (CRTs) all have specific applications for real estate. A CRT can provide an income stream during the investor’s lifetime, a charitable deduction today, and transfer of the remainder to charity — while allowing highly appreciated real estate to be “sold” inside the trust without triggering immediate capital gains.
RIYT works with investors’ estate planning attorneys to structure our investments in ways that accommodate these planning strategies. Our investment offerings can be held by trusts, FLPs, and other estate planning vehicles without restriction.