If you’d like to transfer ownership of real estate to your children, one strategy is to give your children a fraction of the property each year, gradually removing the property from your taxable estate while minimizing or avoiding a gift tax. You can use the annual gift tax exclusion for such transfers.
In 2003, each individual can give up to $11,000 worth of assets per year, per recipient, with no gift tax consequences. For married couples, the number is $22,000. This exclusion will increase gradually, in step with inflation.
Moreover, valuation discounts can be claimed on such transfers. Although each situation is unique, acceptable discounts might be in the 30 percent-35 percent range. Say your home is valued at $330,000. You and your spouse give your son a 1/10th interest. Nominally, each gift is worth $33,000: 1/10th of $330,000.
However, an independent appraisal might support a 33.3 percent discount, based on what a third-party would pay for 1/10th of your home. Now each gift is valued at $22,000, not $33,000, so the transfer is fully covered by the annual gift tax exclusion. If you wish, you can continue making such gifts for 10 years, removing the house from your estate at no gift tax cost.