Family dynamics can matter just as much as tax efficiency when gifting real estate: Atlantic Trust

Beware of the emotional landmines that can go along with transferring property

ATLANTA, Jan. 15, 2015 /PRNewswire/ - When transferring real estate to your heirs, it is important to consider a strategy that's not only tax-efficient but also ensures the family's long-term harmony, says Atlantic Trust, the U.S. private wealth management division of CIBC (NYSE: CM) (TSX: CM).

"You can set off emotional landmines in your family if you haven't created the right strategy to gift real estate," says Scott Thompson, managing director, Atlantic Trust. "Unlike financial assets, such as stocks, a lot of emotion is tied to the family property."

The term real estate encompasses everything from the family home or a cottage to a working farm or commercial property. While many families may now be motivated to gift property thanks to favorable changes to federal estate-and-gift tax rates and a higher exemption amount, there are other factors to consider, such as family dynamics, managing individual expectations and building flexibility into the transfer, says Thompson.

A common strategy is to use a Qualified Personal Residence Trust, which allows members of one generation to transfer property to a younger generation while still retaining their rights to live there. When the trust terminates, the residence becomes the beneficiaries' property with what could be a significantly lower gift tax.

Property could also be transferred either to a limited liability corporation  or a limited partnership in which the children own shares. While the entity exists, the parents could become the tenants and pay rent, which could be used toward upkeep.

Once the decision is made on how the property will be owned it is essential to decide on many important operational aspects of holding, maintaining and transferring the property that may include, but are not limited to, the following: who will have access to the property and when; can someone lend or lease their time to other nonfamily members; who is responsible for paying the costs of operating the property and how will it be calculated; who will be responsible for repairs; and how do family members exit or terminate their interest in the property (if allowed).

"These operating details of managing real estate can cause division within the family and the strategy that is pursed should be designed to account for these types of items and provide for flexibility to handle unexpected events," says H. Arthur Graper, CFP®, managing director and senior wealth strategist, Atlantic Trust.

The tax information contained herein is general and for informational purposes only. Atlantic Trust does not provide legal or tax advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisers.

About Atlantic Trust

Atlantic Trust is one of the nation's leading private wealth management firms, offering integrated wealth management for high-net-worth individuals, families, foundations and endowments. The firm considers clients' financial, trust, estate planning and philanthropic needs in developing customized asset allocation and investment management strategies. Experienced professionals deliver a broad range of solutions, including proprietary investment offerings and a robust open architecture platform of traditional and alternative managers. Atlantic Trust operates in 12 full-service locations throughout the U.S. with $25.9 billion in assets under management (as of October 31, 2014). For more information, visit www.atlantictrust.com.

About CIBC

CIBC is a leading Canadian-based global financial institution. Through our Retail and Business Banking, Wealth Management and Wholesale Banking businesses, CIBC provides a full range of financial products to individual, small business, commercial, corporate and institutional clients in Canada and around the world. CIBC owns a 41 percent equity interest in American Century Investments®, a major U.S. asset management company, serving financial intermediaries, institutions and individuals, and acquired Atlantic Trust, a premier U.S. private wealth management firm, in January 2014. You can find other news releases and information about CIBC in our Media Centre on our corporate website at www.cibc.com.

SOURCE Atlantic Trust Private Wealth Management