Have you thought about what will happen to your home or other properties decades from now? A home or piece of property could be the most valuable asset in an estate, yet if you don’t explicitly plan for it, its fate could end up being decided by default state laws and probate courts. As a result, it could lead to outcomes you never intended, let alone wished for.
In this article, we’ll break down why incorporating your property into your estate plan matters and how to accomplish it in a smart, family-friendly way. Many Baby Boomers today are choosing to keep their homes up to and through retirement rather than selling, meaning their adult children may inherit a house rather than a pile of cash. Real estate is frequently one of the largest pieces of the generational wealth puzzle, and for many Americans, the family home is their single most valuable asset, so protecting it in an estate plan is essential.[1]
Disclaimer: This article provides general educational information and is not intended as legal advice. Estate planning involving real estate is complex and requires coordination between your financial planner and an estate planning attorney. Consult an attorney for personalized guidance specific to your situation.
Smooth Transfers: Avoiding Probate and Pitfalls
(Trust/TOD Deed)
(Bypass Probate)
(Immediate Ownership)
(No Estate Plan)
(Legal Process)
(After Court Approval)
One of the first goals in incorporating real estate into your estate plan is usually to make the transfer to your heirs as smooth as possible. The last thing you want is your loved ones tied up in a lengthy probate court process or, worse, squabbling over who gets to keep the house. Let’s look at a few tools and strategies.
Revocable Living Trust
By placing real estate in a living trust, it can pass directly to your beneficiaries without going through probate. You remain in control of the property during your lifetime, and upon death, the trust transfers ownership to your heirs privately and efficiently. This is especially beneficial if you own property in more than one state. Otherwise, your estate might have to go through probate in each state where the real estate is located. A trust can help avoid that headache entirely.[2]
Transfer-on-Death (TOD) Deed
In some states, you can simply name a beneficiary on the property deed (much like naming a beneficiary on a bank account). A TOD deed lets your house go directly to your named heir at death, bypassing probate, while still giving them the full step-up in tax basis.⁷ It’s quick, private, and often less expensive than setting up a trust. However, not all states allow TOD deeds, and they can have limitations (for example, you can’t name contingent beneficiaries such as charities or minor children directly). Still, if available, this is a simple way to provide added assurance your home goes to the right person without court interference in a more cost-effective manner.[3]
Joint Ownership (with Caution)
You might have heard of adding an adult child as a joint owner on your house so that they automatically inherit it. This can work, as joint tenancy with right of survivorship will indeed let the property pass to the surviving owner without probate. But be careful. Making someone a co-owner during your life is legally a partial gift, which can trigger gift tax filings and, importantly, means the child won’t get a fresh tax basis on that portion of the home.[3]
So, if you give away half the house now, your child inherits your original cost basis for that half, potentially sticking them with a larger capital gains tax bill if they sell. Plus, once they’re an owner, your property could become entangled in their financial issues (like lawsuits or divorce). In short, joint ownership is not always the ideal solution for estate planning, unless every point is very carefully considered and structured.
A Will (Backed by a Plan)
One should always have a will that specifies who gets your real estate. But relying on a will alone means the property will still go through probate. Probate isn’t the end of the world, but it’s public, slow, and can be costly, both financially and emotionally. Your will can direct your home to the right heir (rather than default intestacy law), but it’s simply a minimum step. To really streamline things for your heirs, pairing your will with tools like a trust or TOD deed for the real estate can possibly be more effective.
Smooth Transfers: Avoiding Probate and Pitfalls
Making real estate transfers to your heirs as seamless as possible
Revocable Living Trust
How it works: Place real estate in a living trust to pass directly to beneficiaries without probate. You maintain control during your lifetime.
Transfer-on-Death (TOD) Deed
How it works: Name a beneficiary directly on the property deed, similar to a bank account beneficiary.
Joint Ownership (with Caution)
How it works: Add an adult child as joint owner for automatic inheritance through survivorship rights.
Minimizing Taxes on Real Estate Inheritance
Whenever we talk about estate planning, taxes are inevitably part of the conversation. Real estate has some unique tax angles that your estate plan should account for or take advantage of. As is often the case you can often reduce or even eliminate certain taxes for your heirs.
One huge tax advantage of leaving real estate to heirs at death is the stepped-up basis. Simply put, when your beneficiaries inherit property, the tax basis of that property is typically “stepped up” to its current market value.[4]
That means if they turn around and sell the house, they won’t owe capital gains tax on all that appreciation that occurred during your lifetime but rather only on any gain above the value at the time they inherited.
This can save a significant amount of money. For example, say you bought a property for $200,000 that’s now worth $500,000. If you leave it to your kids and they sell it for $500,000, the taxable gain could be essentially zero due to the step-up. However, if you had gifted them the property before you died, they’d take your original $200,000 basis and face tax on the $300,000 gain.
The tax difference between gifting real estate during life versus inheriting at death. In this example, gifting a house to an heir during your lifetime results in approximately $125,000 of taxable gain for the heir (due to carryover of your original cost basis) if they sell, whereas inheriting the same property at death would result in $0 taxable gain at sale because of the step-up in basis. Holding appreciated real estate until death can significantly reduce capital gains taxes for your heirs.
Another major consideration is the estate tax. As of 2025, the federal estate tax exemption is about $14 million per person and roughly $28 million for married couples. That means if your total estate value (including real estate, investments, etc.) is under that amount, it won’t owe federal estate tax. Anything above that amount, however, could be taxed up to 40%.
So what can you do if you predict your estate will be above exemption levels? One strategy is giving away certain assets early, either outright or through trusts, to shrink your taxable estate. But as mentioned, you have to weigh that against losing the step-up in basis. This is where specialized trusts and strategies come into play for real estate.
Qualified Personal Residence Trusts (QPRT)
With a QPRT, you transfer your home (often a vacation home or very high-value primary home) into an irrevocable trust and retain the right to live in it for a number of years.¹⁶[4]
After that period, the house passes to your heirs (or into a trust for them). The benefit is that it removes the property’s value (and future appreciation) from your estate at a discounted gift tax cost, potentially saving a lot in estate taxes. The catch is that you have to outlive the QPRT term for it to work fully. If the grantor dies during the QPRT term, the home’s full value is pulled back into their estate, eliminating the tax benefit. While QPRTs aren’t for everyone, they can make sense if your estate is far above the exemption and your property is a big chunk of that value.
Grantor Retained Annuity Trust (GRAT)
A GRAT lets you “freeze” today’s value of an appreciating property and shift the future growth to your heirs at little, or even zero, gift‑tax cost. You place the asset (or, easier, an LLC interest that holds it) into the trust and set a short term, say two to ten years. During that period the trust pays you a fixed annuity determined by IRS tables; if the property’s appreciation outpaces that hurdle rate, the excess value lands with your beneficiaries free of additional transfer tax.
Because you’re still treated as the owner for income‑tax purposes, the trust doesn’t trigger immediate capital gains on rent or a future sale. Again, though, the strategy works only if you outlive the term. That said, rolling short‑term GRATs can be repeated as market conditions and your health outlook allow, making them a potentially lucrative “freeze and skim” move for rapidly growing assets.
Sale to an Intentionally Defective Grantor Trust (IDGT)
Think of an IDGT as a private family buy‑out, where tax rules quietly tilt in your favor. You create a grantor trust, seed it with a modest gift, then sell your real‑estate‑holding LLC interests to the trust in exchange for a promissory note. Because you and the trust are the same taxpayer for income‑tax purposes, there’s no capital‑gains hit on the sale, and you continue paying the income tax on trust earnings, effectively shrinking your taxable estate while the property’s future appreciation compounds for your heirs.
If you’d like an extra layer of estate‑tax insurance, you can structure the note as a Self‑Canceling Installment Note (SCIN). Should you pass away during the term, the remaining balance disappears instead of inflating your estate. The strategy demands solid valuations, airtight documents, and a willingness to keep footing the income‑tax bill, but for large estates it can move significant value out of reach of the 40 % estate tax without giving up potential upside.
Family Limited Partnership (FLP) or Family LLC
If your real estate portfolio is sizable, and you’d like to pass it on without giving up day‑to‑day control, an FLP or Family LLC can be a powerful middle ground. You contribute the property to the entity, keep a general‑partner slice to stay in charge, and gradually gift or sell the non‑voting interests to family members. Because those limited units lack both control and easy marketability, the IRS typically allows a valuation discount of roughly 20–35 %.
For example, you first transfer a million-dollar building into a Family LLC. Then, instead of gifting the property itself, you gradually gift non-controlling ownership interests in the LLC. Because those interests lack control and marketability, the IRS may value them at just $700,000, meaning you’ve transferred economic value while using less of your lifetime exemption.
Family Limited Partnership vs Family LLC
READ MORE
Meanwhile, rental income can be distributed (or retained) according to your game plan, and the structure adds a layer of liability protection. The paperwork is heavier than simple joint ownership, yet for high‑net‑worth families it’s often a clean way to slice estate taxes without sacrificing management authority.
1031 Exchanges
For those with significant investment real estate portfolios, another angle is using 1031 exchanges in your planning. Normally, a 1031 exchange lets you defer capital gains tax by selling one investment property and buying another. While you’re alive, you might use 1031s to keep rolling your real estate investments without taxes. But even after you’re gone, you could leave instructions or flexibility for your heirs to do a 1031 exchange if they inherit a property and decide to sell it.
1031 Exchange Strategy Across Generations
How investment real estate exchanges work from lifetime through legacy
During Your Lifetime
At Inheritance
Heirs receive property at current market value
No immediate capital gains tax
Future Heir Strategy
With the step-up in basis, your heirs likely won’t have immediate gain on inherited property, but if they hold it and it appreciates further, a 1031 could help them defer taxes on future gains should they swap properties. If you want your family to be able to continue a real estate investment strategy, your estate plan should allow for it (and make sure whoever is managing the estate or trust knows how to execute a 1031 properly).
Bringing It All Together – Your Next Steps
Incorporating real estate into your estate plan is complex, but not impossible. You want to know that the property you’ve accumulated, developed, and maintained will continue to benefit your family according to your wishes, with minimal hassle and expense.
Laws change, family situations change (maybe you buy a new property or sell one, or a child’s situation shifts), and your plan needs to keep up. This is not a “set it and forget it” part of your financial life. It needs constant attention, review, and adjustments, just like your financial plan.
If you’re unsure about any piece of this, feel free to schedule a review of your overall financial plan. We’ll go over your real estate, your investments, your business interests – everything – and confirm that every part is coordinated for your goals. We specialize in high-tech, low-cost approaches to comprehensive planning, which means you get solid, data-driven strategy without unnecessary fees or fluff. More importantly, you get the confidence that you’ve done right by your family and your future.
Sources:
Disclosures
Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author/presenter as of the date of publication and are subject to change and do not constitute personalized investment advice.
A professional advisor should be consulted before implementing any investment strategy. WealthGen Advisors does not represent, warranty, or imply that the services or methods of analysis employed by the Firm can or will predict future results, successfully identify market tops or bottoms, or insulate clients from losses due to market corrections or declines. Investments are subject to market risks and potential loss of principal invested, and all investment strategies likewise have the potential for profit or loss. Past performance is no guarantee of future results.
Please note: While we strive to provide accurate and helpful information, we are not Certified Public Accountants (CPAs). The information in this article is intended for informational and educational purposes only and should not be interpreted as tax advice. It is crucial to consult with a CPA or tax professional to discuss you
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