Use up your gift tax exclusion. For 2013, you can give up to $14,000 apiece to a child, grandkid or other person without any gift tax consequences. If you’re married, your spouse can also give $14,000, so each done can get up to $28,000 free of gift tax. Annual exclusion gifts beat the estate tax, too. They aren’t added back to you taxable estate, unlike larger gifts, and all future appreciation on them is excluded from your estate.
You can do this with real estate like a vacation home…giving fractional shares in the house to your kids each year until you’ve given away 100% of the property.
If each share is worth less than $14,000, there is no gift tax and the portion given away is out of your estate. To be safe, get an appraisal of the property before making gifts. Another way to transfer ownership is by using a personal residence trust. You must pay rent to use the home during the trust period…usually 10 to 20 years. The home’s estate tax value is frozen when the trust is started, so future appreciation is exempt from estate tax. And if you outlive the trust, the full value is excluded.