iPart 1 of our "Dealing with Estate Taxes" blog addressed the use of a qualified personal residence trust (or "QPRT"). But using a QPRT only works in certain situations and requires a settlor to willingly give up the cottage at the end of the QPRT term.
An alternative estate tax minimization strategy involves the use of a limited liability company. By creating and transferring the cottage to an LLC, an owner can gift membership interests to her descendants through unrecorded assignments. This is easier (and less confusing from a title standpoint) than recording deeds each year. Moreover, this method of gifting allows an owner to get the next generations involved in the use and management issues related to the cottage without actually giving them direct ownership of the real estate itself.
Some care is necessary regarding the amount of the interests transferred to avoid an inadvertent uncapping of the real estate taxes. Nevertheless, using LLC interests for gifts to accomplish estate tax planning objectives can be beneficial from a tax standpoint as well as a long-term management standpoint. Moreover, using a cottage LLC can assist with the long-term management of the cottage as well.
