The 3 Best Ways to Give Your Kid Real Estate — and What Not to Do

The key to owning property may no longer be related to income or credit, but having parents who can hand over a home the right way.

The greatest financial hand-off in history is underway, and Monopoly-minded Americans have a rare opportunity. Experts estimate that US families will pass on more than $105 trillion in assets over the next few decades, and the real estate game is an especially interesting one.

For heirs staring down soaring housing costs — a nearly 70% spike in the median home price since January 2019, hitting $422,800 in May 2025, according to data from the National Association of Realtors — this gameplay could be a lifeline.

Yet to pass property between generations, parents face a tightrope walk: balancing complex inheritance laws with ever-shifting gifting limits. A poorly timed transfer or a seemingly harmless deed change can snowball into a five- or six-figure tax bill, potentially unraveling your family’s long-term financial strategy.

Advisers said there are three key ways to give your kids real estate — as well as three mistakes that could turn this wealth-building launchpad into a potential landmine.

Consider Cash

The easiest option for parents may be to give their child the capital to make a home purchase on their own.

Send Them the Money
Families that aren’t able to fund an entire home purchase, yet still want to pitch in for some of the costs, can transfer the funds. In fact, 27% of younger millennials received down-payment assistance in the form of a gift or a loan from a friend or relative in 2025, according to the NAR.

You can give any individual up to $19,000 annually — or $38,000 for spouses splitting a gift — without needing to report it to the Internal Revenue Service. Any more than that will count toward your federal lifetime gift and estate limit of $13.99 million as of 2025. (At the state level, Connecticut is the only state with a gift tax, and 12 states plus the District of Columbia have an estate tax, according to the Tax Foundation.)

People often worry that if they go over the annual federal limit, it immediately triggers tax penalties, which isn’t the case. For example, let’s say you want to give your daughter $100,000 toward a down payment in cash. Because that amount is over the annual $19,000 limit, you would be required to report the gift to the IRS. The money would be deducted from your $13.99 million lifetime gift limit (or $27.98 million for married couples), including estate taxes, meaning you would still have $13.89 million to give before taxes actually kick in.

With cash in hand, your child can then purchase the real estate. If they apply for a mortgage, you’ll need to submit what’s called a gift letter addressed to the provider explaining the money doesn’t require repayment.

Make a Loan Document
If you want your child to learn how to manage debt while retaining a legal claim on the funds, Jennifer Galvagna of Bank of America Private Bank recommends making an intrafamily loan. These types of agreements can offer lower rates than you would get at a bank and have the added benefit of allowing parents to forgive loan payments annually up to the gift tax exclusion limit, effectively turning portions of the loan into tax-free gifts over time, said Galvagna.

The IRS requires intrafamily loans to have a written agreement that establishes a formal relationship between the lender and the borrower and outlines the terms of the loan, including the interest and a plan for repayment. While you can technically draft the loan document yourself, mistakes could be costly, so it’s a better idea to work with a tax expert or an estate planner to draft the promissory note. Keep in mind that while these rates can be lower, the minimum interest charged must be in line with the applicable federal rate at the time the loan was closed or else the overage will count toward your annual gift limit.

Place the Property in a Trust

Any family that hopes to pass along wealth to the next generation should consider a trust, according to Jeremiah Barlow, the head of wealth solutions at Mercer Advisors. These arrangements aren’t strictly for the moneyed class, and families are increasingly using the estate planning tool to buy real estate if they have enough money to cover the full purchase price.

“A trust can reduce estate taxes, avoid gift tax issues and offer more protection and flexibility,” said Galvagna.

There are two basic types of trusts: revocable and irrevocable. The type you choose will be based on the value of the assets you plan to transfer and when you’d like your children to benefit from them, said Courtney Fell, the executive director of wealth and estate planning at Morgan Stanley Private Wealth Management. The cost to set up the trust document will depend on the complexity of your estate, but can range from a couple thousand dollars to $100,000 to hire an estate attorney and financial adviser.

Go With a Revocable Trust If You Want Something Akin to a Will
Put simply, revocable trusts are best for those with smaller estates whose goal is to pass on property after their death. The advantage of a revocable trust over a will is the transfer can be administered outside of backlogged public probate courts, allowing for a smooth and discreet handover to your beneficiaries, said Caryn Young, an estate and gift tax attorney for Withersworldwide. These types of trusts can also be easily amended or revoked during your lifetime.

Since revocable trusts transfer assets upon death, those holdings will be subject to an estate tax if the value exceeds the current limit of $13.99 million.

Choose an Irrevocable Trust If You Have a Complex Fortune
An irrevocable trust is best for high-net-worth families with complicated portfolios. In addition to privacy and ease of transfer, an irrevocable trust has the added benefits of asset protection from divorce or creditors, Barlow said. It also allows your beneficiary to reap the benefits of the property during your lifetime, meaning you can allow your child to live in the home.

This option removes the real estate from the assets you plan to transfer to loved ones upon your death, lowering future estate taxes. Irrevocable trusts are still subject to gift taxes, which sounds annoying since gift and estate taxes both pull from that same $13.99 million pot before tax penalties take hold. However, because the property will likely increase in value over time, placing real estate in an irrevocable trust essentially “freezes” the cost of what you’re passing on to your beneficiaries at its current value, nixing any future tax appreciation from the grantor’s estate.

Manage an LLC

High-net-worth individuals have long used limited liability companies, or LLCs, for tax advantages and strategic asset management. Yet legislative crackdowns in states preferred by millionaires and billionaires, including New York and California, mean LLCs won’t offer the level of privacy they used to once those laws take effect, Barlow said.

LLCs are still useful and a good choice for families with a business or income-generating asset, such as a rental property.

Forming an LLC is straightforward: Come up with a unique name, register it with the state of your choice, create an operating agreement and obtain an employer identification number, or EIN. You can either transfer the property ownership to the LLC, or the entity could purchase the property if you have the requisite funds.

Allow Heirs to Benefit From Rentals
If a family has or wants a rental property for their child, they could form an LLC and either purchase or transfer the real estate to that entity. LLCs distribute any income made from the property directly to the owners, who are charged income taxes at their individual rate, avoiding a second tax on business profits.

Because the LLC exists separately from the owners’ assets, they also provide a layer of liability protection, according to Fell. If a renter were to get injured on the LLC-owned property and tried to sue for damages, they would file the suit against the LLC, not the owner, protecting any wealth and assets under the owner’s name.

Combine an LLC With a Trust
If a parent wants to transfer LLC ownership to a child, it could still be subject to the public probate process. That’s why Barlow and other financial advisers often encourage parents to combine an LLC with a trust to reap the most benefits possible. Parents can set up a new or existing trust to hold ownership interests in the LLC, meaning the ownership transfer will happen outside the probate process and the grantors can specify when and how beneficiaries receive the assets.

This is also an ideal option if you have multiple heirs and want to gift fractional ownership shares. For example, if you want your beneficiaries to co-own a vacation home or to receive equal income from a rental property, you can do so by splitting shares of the LLC between multiple trusts, according to Barlow.

Whatever You Do, Avoid…

Using a Will to Transfer Real Estate
Wills don’t offer the same privacy and tax advantages as trusts. Wills subject a person’s entire estate to probate courts, a process that now takes months, according to Barlow. In addition to the timeliness factor, the estate will become part of public records, exposing a family’s finances. Wills alone don’t offer any tax advantages. Additionally, wills can be limited because they often don’t apply to assets that are jointly owned, and can only be executed after death.

Changing the Deed
Some parents might think the easiest option is to transfer the deed of the property to their child. To do so, however, the parent would need to give up control of the house and wouldn’t be able to live there unless they were willing to pay fair market rent. And while a trust or a will allows you to stipulate how the property is used, transferring the deed to a child means they can do whatever they please with the home, even selling the real estate against your wishes, noted Galvagna.

Tax-wise, transferring the deed would also be considered a gift and the property’s market value would likely exceed the annual tax exemption and apply to your lifetime gifting allowance, Fell said. Another major downside? If your child decides to sell the property, the capital gains tax could be more costly because the taxes will be calculated with the original cost of the home and not the value at the time of transfer.

Selling at a Discount
Parents can sell their real estate holdings to a child just as they would to any other buyer. Problems arise when you try to sell the property at a cheaper cost.

The difference between the sale price and market value would be considered a gift and subject to gift tax rules, Galvagna said. Your child would also inherit your original purchase price, leading to a higher capital gains tax if they decide to sell the property in the future.

So while you can legally sell the house for $1, that doesn’t mean you should since the deal could become a financial headache for both you and your heir. After all, why roll the dice on a tax burden when the goal is a lasting financial legacy?