I am often asked, what is a safe planning technique an individual can do regarding transferring assets to their heirs? Since the family residence is one of their major assets, it is not surprising that transferring it to a special trust can lead to major benefits for all parties. The reason for this is legislation enacted by Congress that has approved this planning. This planning still works in 2010 even though estate tax this year but the gift tax is still around. In 2011 the estate tax returns under current law.
I have gone through estate tax audits with the IRS and a qualified personal residence trust is easily approved, if (i) there has been proper valuation of the residence at the time of transfer and (ii) the parent(s) follows the planning discussed below. Often, I only transfer a 50% interest in the residence which is permitted by IRS regulations. This helps when the parent(s) still wants to retain their separate interest in the residence. The parent can also transfer a vacation home under this type of planning. The IRS limits this planning to only two residences. Since this planning is done mostly between parent and child, at the end of the fixed term there will be no increase in property taxes!