What Is the Best Way to Pass Property to Heirs?

Estate planning is done to ensure that wealth is passed efficiently, while minimizing tax exposure. For many families, wealth includes real estate. Gifting undivided real estate interests is often overlooked as a smart way to pass property to loved ones, as explained in a recent article, “Unlocking Value in Shared Real Estate” from Wealth Management.

Families owning joint properties like vacation homes, rental properties, or inherited land should consider the use of undivided real estate interests to secure a financial legacy. Undivided real estate interests refer to a fractional share of a property that multiple owners hold joint rights to, without any specific part belonging to any one person. Every owner has equal access and ownership to the entire property, and the owners don’t have to be related. These typically take the form of homes passed down to multiple heirs or rental properties owned by siblings or business partners.

The term “tenancy in common” is often used interchangeably with undivided real estate ownership.

There are some drawbacks to this ownership structure. Major decisions will need all owners to agree. Owners may not sell their joint rights to the property, unless they can find someone who wants to be a joint owner—there’s no significant market for buying a house with someone else’s family. This makes it challenging to achieve liquidity due to a lack of control and marketability.

These same drawbacks produce significant benefits, namely, creating valuation discounts because of the inherent limitations on control and marketability. Unlike properties wholly owned by individuals, fractionally owned real estate is recognized by the IRS as having a fair market value that differs from that of properties wholly owned by individuals. A professional valuation expert will be needed to substantiate the discounts, allowing the family to claim accurate value reductions.

Here’s an example of how this might work. Let’s say three siblings inherit a family vacation home valued at $1.5 million. Each receives an undivided one-third interest. While the value of the total property is clear, the experienced appraiser takes into account the fractional ownership structure. The valuation discount is 30%, with the fair market value of the taxable gift being $350,000 per sibling. The total amount transferred for estate tax purposes is then reduced to under $1.1 million from the original $1.5 million.

Planning with an experienced estate planning attorney and a professional valuation expert is crucial for effectively applying valuation discounts. The IRS scrutinizes valuation discounts, so having real market data is necessary to support the discount. This is not the time to use a boilerplate form or use non-professionals.

Despite the complexity, the use of undivided real estate ownership can yield substantial tax advantages, making this something to discuss with your estate planning attorney to secure your legacy.

Reference: Wealth Management (May 19, 2025) “Unlocking Value in Shared Real Estate”

Turning Market Losses into Tax Wins with Charitable Donations

Those who sold stocks or other securities during the recent market downturns have an option to do good while boosting tax benefits, says a recent article from Barron’s, “You Sold at a Loss. How to Cut Your Tax Bill and Help Others.” Charities can use the help right now, and you can ramp up your tax loss harvesting.

How could it work? Let’s say you owned 10,000 shares of company stock originally bought for $100 a share, costing $1 million, and the price fell to $70 a share, then you sold it for $700,000. You’ve realized a $300,000 loss you can use to offset future gains and avoid taxes. Suppose you are able to donate the $700,000 directly to a charity or contribute it to a Donor Advised Fund by December 31 and itemize deductions on your tax return. In that case, you’ll win twice with tax-loss harvesting and a charitable donation for the current year.

The key is to sell the asset first, then donate the proceeds to charity. People are usually advised to gift the asset directly to the charity to avoid capital gains and receive a deduction. However, in this strategy, the opposite is done. Take the loss yourself and avoid taxes on future gains.

If you gift assets with losses directly to a charity, you’ll still get the itemized deduction. However, when the charity sells the asset, the realized losses don’t flow back to you. Donating the asset first allows you to write off 60% of the value of the cash donation from your AGI, while gifts of appreciated stocks are capped at 30% of the donor’s Adjusted Gross Income.

A Charitable Lead Trust or Charitable Remainder Trust could also help if you’re sitting on cash from selling stocks or other assets and looking for estate planning ideas. These trusts are good tools for people who are charitably minded and want to get assets out of their taxable estate.

The Charitable Lead Trust allows the charity to receive annual payments over a specified term of years or until the donor’s death. At the end of the term, remaining assets are distributed to beneficiaries. In a Charitable Remainder Trust, the donor or beneficiaries receive an income stream for a specified term and any remaining assets are distributed to the charity.

If you use an undervalued asset in a Charitable Lead Trust, you’ll increase the impact for both the charity and beneficiaries. In a Charitable Lead Annuity Trust, the value of your donation will be discounted, since the charity receives the income over the term of the trust.

The charity receives funding, and heirs benefit from any rebound in the depreciated asset’s value and growth, while the estate avoids paying gift taxes.

Talk with an experienced estate planning attorney to discuss how these methods may burnish your legacy by minimizing taxes, thereby increasing inheritance and building a family tradition of supporting those less fortunate.

Reference: Barron’s (June 1, 2025) “You Sold at a Loss. How to Cut Your Tax Bill and Help Others”

Late in Life Marriages Require Estate and Financial Planning

Marriage at any age involves compromises of varying degrees. When couples marry late in life, the financial and legal decisions revolve around different issues. Who pays for the bucket-list trips? Whose name should go on the deed to the new condo or the home the newlyweds will share until death parts them?

A recent article from The New York Times, “Remarrying in Retirement? It Can Make Money Management Tricky,” explains a growing trend as Americans 65 and older are getting remarried at an increasing frequency. The marriage rate increased from 4.6 people per thousand in 1990 to 5.1 in 2022. By contrast, the remarriage rate in the general population plunged by about 50%.

Merging money and estate planning can get complicated when you marry later in life. People over 65 are more likely to have assets, including retirement accounts and real estate. There may also be children from prior marriages.

Women often arrive in second marriages with fewer assets than their male partners. However, this is more likely to be the case for older women whose generations were limited by social restrictions on women’s earning capacity and career advancement.

For women in this situation, a second marriage can become financially perilous if they don’t have a claim on a home that is to be inherited by stepchildren. Women who have contributed to a household for decades but whose name was never added to the deed very often find themselves in a no-win situation.

If heirs decide to sell the house after a father dies, the stepmother will not have a legal claim to the property or the proceeds unless the deed was changed. Promises made and provisions in a will won’t overcome the deed, even if the surviving spouse was on the mortgage.

For older couples, prenuptial agreements, life insurance and trusts are powerful tools to protect each other. A prenup forces a conversation about what happens if the marriage ends, whether by divorce or death. It may be an uncomfortable discussion, but it can shed light on assumptions about important issues. If both partners have children from prior marriages and intend to give their children all their estate regardless of their partner’s needs, it’s better to know this from the onset.

Life insurance is a good way to provide for spouses or children from prior marriages. In some cases, allocating different percentages of contributions to household expenses is used to address wealth disparities. The math sometimes gets complicated. However, every couple hopefully finds a fair resolution.

In many cases, trusts can be used to protect a financial legacy. This is especially appropriate if one spouse has large healthcare costs not covered by Medicare and needs long-term care. A Medicaid Asset Protection Trust (MAPT) is often used for these situations.

These types of legal structures can seem cold-hearted and transactional. However, they are necessary to ensure that the surviving spouse has a financial cushion if they don’t have enough resources of their own.

Conflicts often arise when a homeowner gives their surviving spouse the right to live in a home they owned together until the spouse’s death. The children from a prior marriage must wait to sell the house, which can engender bad feelings towards the second spouse.

For some couples, remarriage doesn’t make sense from a financial standpoint. For example, marriage triggers inheritance rules for certain retirement accounts. If one spouse has a pension, they may be legally required to name the other as a beneficiary. If the person with the account had wanted it to go to a child, the spouse would have to cede their right to it with extra documentation. Remarriage might also mean sacrificing alimony, pension benefits, or Social Security payments.

An experienced estate planning attorney can address many of these concerns through trusts and other estate planning strategies. Ideally, this should be done before you say “I do” again, but it can also be done after you’ve walked down the aisle together.

Reference: The New York Times (May 10, 2025) “Remarrying in Retirement? It Can Make Money Management Tricky”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

What Is the Best Way to Pass Property to Heirs?

Turning Market Losses into Tax Wins with Charitable Donations

Join Our eNewsletter

Recent Posts

What Is the Best Way to Pass Property to Heirs?

Turning Market Losses into Tax Wins with Charitable Donations

Categories

Email/Social Media

Quick Links