Case Studies

Legacy Planning Case Study: Estate Planning


Our client wants to gift a rental property to their grandchildren to help cover the costs of their college education, but are concerned about giving them immediate access to the cash flow generated by the property.


How can we minimize gift tax, offer creditor protection, restrict access to cash flow, while allowing for the most potential growth in the value of the transferred real estate?


Instead of transferring the real estate directly to their grandchildren, the grandparents first form an LLC then contribute their real estate to the LLC. By gifting interests in the LLC, the value of the gift is heavily discounted for lack of marketability and control allowing the grandparents to minimize the use of their lifetime gift tax exemption, thus reducing their future estate tax. If the real estate has low tax basis, which would result in a large gain and future income tax, there are additional strategies that can be used to minimize tax.

In addition to the substantial gift tax discount, we structured the gift to be made to a trust instead of directly to the grandchildren. The trust offered asset protection from creditors and divorce, while also allowing the grandparents to pay all of the income taxes generated by the trust (this further reduces their future estate tax). By using this strategy, the trust can grow income and estate tax free for as long as the assets remain in trust and provide flexibility to allow distributions to fund the grandchildren’s college education.