A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors. Sign up to receive future editions directly in your inbox.
The massive wealth transfer underway is also driving a real estate transfer, with up to $25 trillion in property owned by older generations potentially passing down—and sparking disputes—within families.
Cerulli Associates projects $105 trillion will shift from baby boomers and older generations by 2048, with real estate—primary homes, vacation properties, and investments—making up a significant portion. The Federal Reserve notes that the silent generation and baby boomers together hold nearly $25 trillion in real estate.
But property inheritance often triggers conflict. Wealth advisors warn that taxes, upkeep costs, and disagreements over ownership or usage can make passing down real estate tricky. Selling the property and dividing the proceeds is the simplest approach.
“Some want to keep the house while others don’t,” said Jere Doyle of BNY Wealth. “Practical reality is, there will be fights and disagreements—you won’t have a perfect situation.”
Still, lawyers and wealth planners say families can take steps to transfer real estate more smoothly, reducing taxes, costs, and conflict. Here are five strategies for successful real estate inheritance—whether it’s a Park Avenue apartment, a Vineyard beach house, or a Montana ranch.
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Transfer real estate in your will or through a trust to avoid a major tax bill.
Vacation homes can be the trickiest assets to pass down, according to Elisa Rizzo of J.P. Morgan Private Bank. While many clients downsize their primary residences, families often remain attached to second homes.
“That vacation home becomes a central gathering place,” said Rizzo, head of family office advisory at JP Morgan. “It’s where families create lasting memories—whether a ski house in Vermont or a Nantucket retreat.”
BNY Wealth’s Jere Doyle advises against gifting long-held real estate during your lifetime. He explains that if heirs sell the property, they face capital gains taxes based on the original purchase price.
“If you give during your lifetime, the kids take your cost basis,” said Doyle. “Many seniors didn’t pay much for the property initially, so the tax hit can be substantial.”
Strategies like a qualified personal residence trust can reduce taxes, but Doyle notes it’s generally wiser to transfer real estate via a will or trust at death. In that case, heirs only owe capital gains taxes on appreciation after inheritance.
Use LLCs and trusts to shield the home from lawsuits.
Lawyers often recommend placing homes in a limited liability company (LLC) and setting up a trust for the children’s benefit instead of transferring property ownership directly.
This structure offers multiple protections. If a vacation home is rented and a tenant is injured, heirs are shielded from personal liability.
“Your other assets, like stocks and bonds, aren’t exposed to creditor claims,” said BNY Wealth’s Jere Doyle.
It also protects heirs from each other’s financial risks. Dan Griffith, director of wealth strategy at Huntington Private Bank, explains that if one sibling declares bankruptcy, creditors cannot place a lien on the shared property.
Additionally, gifting LLC interests instead of the property itself can reduce transfer taxes. Since fractional LLC interests are illiquid, parents can apply a discount to the property’s taxable value, making this strategy both protective and tax-efficient.
Outline who gets to use the home and how.
Parents can set rules through an LLC operating agreement to protect family real estate. According to Laura Mandel of Northern Trust, this ensures homes stay within the family and don’t pass to children’s spouses.
“Families typically want to retain these properties along the bloodline,” said Mandel, chief fiduciary officer.
Operating agreements can restrict transfers to current or former spouses and include buyout provisions if disputes arise. A properly structured trust makes it difficult for spouses to challenge these rules in court.
The agreements can also govern property use—who can visit during holidays, who can redecorate, or whether the home can be rented or used for events. Leaving these issues unresolved often sparks sibling conflict. Mandel recalls helping four siblings with a western ranch reach an agreement after frequent rentals made it feel like a “VRBO.”
Set aside liquid assets for the house’s upkeep and insurance.
Money is the leading cause of family disputes, according to Dan Griffith of Huntington Private Bank. Inherited homes can quickly become a financial burden if parents don’t set aside funds for upkeep.
“Often, one person ends up paying the bills, creating resentment if siblings don’t contribute,” Griffith said. “Or they feel, ‘I pay everything, so why don’t I get more time in the home?’”
Jere Doyle of BNY Wealth recommends using liquid assets, like marketable securities or a life insurance policy, to fund the trust. This allows siblings to maintain the property even if they cannot cover expenses individually.
“In many cases, some kids can afford upkeep while others cannot, so equality becomes a challenge,” Doyle explained.
The operating agreement should also include contingency plans if the trust runs out, especially for high-cost properties like waterfront homes with insurance or erosion risks.
Prepare for the likelihood that some heirs may want to cash out.
Parents often assume their children will want to keep the family home, but plans can change, says Laura Mandel of Northern Trust. Heirs may tire of sharing the property or life events—like a death in the family—can alter plans. Mandel cites a ranch-owning family where the sibling with key knowledge of the property passed away, upending the others’ plans.
It’s crucial to plan for heirs who may want to cash out. Jere Doyle of BNY Wealth recommends buyout provisions allowing siblings to purchase each other’s LLC interests, even using promissory notes or trust assets if needed.
“You have to acknowledge that circumstances change—jobs, health, or family dynamics,” Doyle said.
Dan Griffith of Huntington Private Bank adds that trying to force heirs to keep a property can backfire. “If grandchildren have no connection to the home, selling it allows someone who values it to enjoy it. That’s not necessarily a bad outcome.”
Frequently Asked Questions
Should I give my real estate to my children during my lifetime or through a will/trust?
It’s usually better to transfer property through a will or trust. This allows heirs to inherit a stepped-up cost basis, reducing capital gains taxes if they later sell the home. Gifting property during your lifetime can trigger higher taxes for the heirs.
How can I protect the property from creditors or spouses of my children?
Placing the home in an LLC and creating a trust for your children’s benefit can shield it from personal liability, creditors, or claims from spouses. Operating agreements can set rules on transfers and use of the property.
How do I prevent conflicts among siblings over inherited real estate?
Clear agreements in LLC operating documents or trusts can define usage, scheduling, buyout options, and responsibilities for maintenance costs. Including contingency plans for unexpected expenses also helps prevent disputes.
Can I minimize taxes when passing down real estate?
Yes. Gifting fractional interests in an LLC or using a qualified personal residence trust can reduce transfer and estate taxes. Structuring transfers properly ensures heirs pay less in taxes and can retain the property more easily.
What if some heirs want to sell while others want to keep the property?
Include buyout provisions in the trust or LLC agreement. Heirs can purchase siblings’ interests using promissory notes or trust assets, ensuring fairness while avoiding forced sales.
How can I fund ongoing maintenance for inherited vacation homes?
Parents can endow the trust with liquid assets, marketable securities, or life insurance proceeds to cover upkeep, insurance, and taxes, preventing financial strain on heirs.
Can I control how heirs use the property?
Yes. Operating agreements and trusts can outline rules on vacation scheduling, renovations, rentals, or special events, helping prevent conflicts and preserve the property for future generations.
Conclusion
Passing real estate to the next generation can be both a meaningful gift and a potential source of conflict. By planning carefully—with wills, trusts, LLCs, and clear operating agreements—parents can minimize taxes, protect assets, and reduce family disputes. Funding maintenance costs, establishing buyout provisions, and setting usage rules help ensure that properties remain cherished family assets rather than sources of tension. Ultimately, thoughtful planning allows heirs to enjoy the home, preserve memories, and honor the family legacy while maintaining financial and emotional harmony.