Strategies to Transfer Property

Understanding property transfer strategies is essential for effective estate planning. Property can pass from one owner to another through various mechanisms, each with distinct legal, tax, and practical implications. CFP professionals must understand these methods to help clients minimize transfer costs and ensure assets reach intended beneficiaries.

Methods of Property Transfer

Property transfers occur through four primary mechanisms:

1. Operation of Law

Property passes automatically based on how it is titled, without court involvement:

• Joint Tenancy with Right of Survivorship (JTWROS): Property passes directly to surviving joint tenant(s)
• Tenancy by the Entirety: Similar to JTWROS but limited to married couples
• Community Property with Right of Survivorship: Available in community property states

2. Contract

Assets with beneficiary designations transfer according to the contract terms:

• Life insurance proceeds
• Retirement accounts (401(k), IRA, pension plans)
• Annuities
• Payable-on-Death (POD) bank accounts
• Transfer-on-Death (TOD) brokerage accounts

3. Trust

Assets held in trust transfer according to trust terms:

• Revocable living trusts avoid probate
• Irrevocable trusts can provide estate tax benefits
• Trust assets pass outside the probate process

4. Probate

The court-supervised process for distributing assets:

• Assets passing under a will (testate)
• Assets passing under state intestacy laws (intestate)
• Generally slower and more expensive than other methods

Lifetime vs. Testamentary Transfers

Annual Exclusion Gifts (2025: $19,000 per donee)

The annual gift tax exclusion allows individuals to transfer wealth without gift tax consequences or using any lifetime exemption.

Key Features:

• 2025 Limit: $19,000 per donee (up from $18,000 in 2024)
• Gift Splitting: Married couples can combine exclusions for $38,000 per donee
• Unlimited Recipients: Can give to any number of people
• Present Interest Required: Gift must be immediately available to recipient

Strategic Applications:

• Family Wealth Transfer: Parents with 3 children and 6 grandchildren can transfer $171,000 annually ($19,000 x 9 recipients)
• Married Couple Strategy: With gift splitting, the same family can transfer $342,000 annually ($38,000 x 9)
• Consistent Annual Gifting: Over 10 years, significant wealth can transfer without using any lifetime exemption

529 Plan Superfunding

Section 529 plans offer a unique accelerated gifting opportunity through the 5-year election.

How Superfunding Works:

• Maximum Single Contribution (2025): $95,000 ($19,000 x 5 years)
• Married Couples: Can superfund $190,000 per beneficiary ($95,000 each)
• Election Required: Must file Form 709 to elect 5-year averaging
• Prorated Treatment: Contribution treated as made ratably over 5 calendar years

Important Rules:

1. No Additional Gifts: Cannot make additional annual exclusion gifts to same beneficiary during 5-year period
2. Death During Period: If donor dies before 5 years elapse, remaining prorated portion included in gross estate
3. Excess Contributions: Amounts above $95,000 are taxable gifts in year of contribution
4. Filing Requirement: Form 709 must be filed even though no gift tax is due

Example:

In 2025, Grandparents superfund 529 plans for 4 grandchildren:

• Each grandparent contributes $95,000 per grandchild
• Total transferred: $760,000 ($95,000 x 2 x 4)
• No gift tax due; no lifetime exemption used
• Must report on Form 709 with 5-year election

Qualified Transfers (IRC Section 2503(e))

Direct payments for tuition and medical expenses are completely excluded from gift tax with no dollar limit.

Tuition Exclusion Requirements:

• Direct Payment: Must pay directly to qualified educational institution
• Tuition Only: Does not include room, board, books, fees, or supplies
• Qualified Institutions: Accredited schools, colleges, universities, trade schools
• No Limit: Unlimited amount can be paid

Medical Exclusion Requirements:

• Direct Payment: Must pay directly to medical care provider or insurer
• Qualified Expenses: Diagnosis, treatment, prevention of disease; medical insurance premiums
• No Reimbursements: Cannot reimburse someone who already paid
• Insurance Premiums: Health, long-term care, and certain Medicare premiums qualify

Strategic Value:

These qualified transfers:

• Do NOT count against annual exclusion
• Do NOT reduce lifetime exemption
• Do NOT require Form 709 filing
• Can be used in addition to annual exclusion gifts

Example:

In 2025, a grandmother makes the following transfers for her granddaughter:

• $50,000 tuition paid directly to university (excluded)
• $15,000 medical bills paid directly to hospital (excluded)
• $19,000 cash gift (annual exclusion)
• Total transferred: $84,000 with zero gift tax consequences

Appreciated Property Transfers

Carryover Basis Rule:

When appreciated property is gifted:

• Donee receives donor's adjusted basis (carryover basis)
• Donee also receives donor's holding period
• Unrealized gain transfers to donee

Strategic Considerations:

Gift Appreciating Assets Early:

• Future appreciation occurs outside donor's estate
• Works best for assets expected to grow significantly
• Removes future growth from estate tax calculation

Avoid Gifting Loss Property:

• If FMV < basis at time of gift, donee's basis for loss purposes is FMV
• Loss is permanently lost; neither donor nor donee can claim it
• Better strategy: Donor sells, claims loss, then gifts cash

Avoid Gifting Low-Basis Assets to Elderly:

• At death, assets receive stepped-up basis to FMV
• Holding low-basis assets until death eliminates unrealized gain
• Consider which assets to gift vs. which to retain

Basis Comparison Table:

Practical Application

A comprehensive property transfer strategy should:

1. Maximize annual exclusion gifts to reduce taxable estate
2. Use qualified transfers for education and medical needs
3. Consider superfunding 529 plans for education savings
4. Gift appreciating assets to shift growth outside estate
5. Retain low-basis assets for stepped-up basis at death
6. Coordinate lifetime gifting with overall estate plan

Understanding these strategies allows CFP professionals to help clients transfer wealth efficiently while minimizing transfer taxes and achieving family financial goals.