With real estate properties continuing to increase in value and interest rates at historical lows, real estate assets can often be a significant piece of a taxable estate. A sale-leaseback can be a simple but highly effective estate planning strategy for a family to remove appreciating real estate from the estate while continuing to use the property. It can be a particularly effective strategy if the property is expected to appreciate in value, you would like to remove the asset from your taxable estate, you would like to continue to use the home, and you would like to pass the property down to your children or other family members.
The transaction will require two parties, with the grantor (owner) selling the property to the other party (ie. family member) and immediately leasing the property back. The property is often sold to a trust which is “defective” for income tax purposes, with the income taxed to the grantor. Although “defective” for income tax purposes, it can be very effective for estate and Generation Skipping Transfer (GST) tax planning. The transaction would be structured as follows:
Alternatively, a grantor may decide to gift the property and then leaseback to continue living in the home. This could be a good strategy if the grantor still has a significant amount of lifetime exemption remaining or there is a strong possibility that the current exemption amounts will be rolled back in 2025 or sooner.
The current economic and interest rate environment has provided many with an opportunity to pursue highly effective estate planning and wealth transfer strategies. One of these strategies is the sale or gift and leaseback of real estate. For families with significant real estate asset(s), this could be a tremendous opportunity to transfer a property to future generations while minimizing future estate taxes and taking advantage of the historically low interest rates.
Feel free to contact our Wealth Strategies group if you have questions on this estate planning topics or would like help connecting to an estate attorney.
Robert Katz, CFP® – Partner, Director of Wealth Strategies – 617.986.5145
Michael Syer, CFP® – Wealth Strategies Advisor – 617.986.5157
Nicole DellaPasqua – Client Associate – 617.986.5159
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