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Real Estate Investment Advisory
Protect, preserve, and transfer your real estate wealth to the next generation. A guide to the strategies Bay Area property owners use to minimize taxes and maximize what they leave behind.
For most Bay Area investors, real estate is the largest component of their net worth. Yet many property owners spend decades building their portfolios without a clear plan for how those assets will be protected, managed, and transferred when the time comes.
Without proper estate planning, your heirs could face significant estate taxes, capital gains taxes, probate costs, and family disputes over property. In California, where a single multifamily building can be worth several million dollars, the financial stakes of poor planning are enormous.
The good news is that real estate also offers some of the most powerful estate planning tools available — from the stepped-up basis at death to irrevocable trusts, charitable strategies, and 1031 exchanges that can defer taxes across generations.
Important: Estate planning requires the guidance of a qualified estate attorney and CPA. Mershad Rezayati is a Real Estate Investment Advisor — not a legal or tax advisor. This page is educational. Always consult your legal and tax professionals before making estate planning decisions involving your property.
Federal estate tax rate on assets above the exemption threshold — applied to your heirs, not you
Federal estate tax exemption per individual in 2024 — scheduled to drop significantly after 2025 unless Congress acts
Capital gains tax your heirs owe at inheritance if they receive a stepped-up basis — one of the most powerful estate planning tools available
Average California probate timeline for estates without a trust — a costly, public, and time-consuming process for your heirs
The stepped-up basis is one of the most valuable — and least understood — estate planning benefits available to real estate investors. Understanding it can save your heirs hundreds of thousands of dollars.
When you purchase an investment property, your "cost basis" is what you paid for it. When you eventually sell, you owe capital gains tax on the difference between your sale price and your cost basis.
However, when you pass a property to your heirs at death, the IRS "steps up" the cost basis to the property's fair market value at the time of your death. This means your heirs inherit the property as if they had purchased it at today's value — and if they sell shortly after inheriting it, they owe little to no capital gains tax.
For Bay Area investors who purchased properties decades ago at a fraction of today's values, this can represent a tax savings of hundreds of thousands — or even millions — of dollars for their heirs.
| Original purchase price (1995) | $320,000 |
| Current market value (2025) | $2,400,000 |
| Capital gain if sold today | $2,080,000 |
| Tax owed if sold today (~33% blended) | ~$686,000 |
| Tax owed if heirs inherit & sell with stepped-up basis | $0 |
These are the primary tools Bay Area investors use to protect and transfer real estate wealth. Each has different benefits, limitations, and ideal use cases — always implement with a qualified estate attorney and CPA.
The most common estate planning tool for California property owners. A revocable living trust holds your real estate during your lifetime and transfers it to your heirs at death — bypassing probate entirely. You retain full control and can change it at any time.
Unlike a revocable trust, an irrevocable trust removes assets from your taxable estate — reducing potential estate taxes. The tradeoff is that you give up control over the assets once transferred. Best for high-net-worth investors with estates above the federal exemption.
A highly appreciated investment property is transferred into a CRT. The trust sells the property without immediate capital gains tax, reinvests the full proceeds, and pays you (or your spouse) an income stream for life. The remaining assets pass to your chosen charity at death.
Use a 1031 Exchange to continuously defer capital gains taxes throughout your lifetime — upgrading your portfolio while deferring taxes — and then pass the final replacement property to your heirs with a stepped-up basis, permanently eliminating the deferred gain.
Transfer investment real estate into a family limited partnership, then gift limited partnership interests to heirs over time. Valuation discounts for lack of control and marketability can reduce the taxable value of the transferred interests — a powerful tool for large portfolios.
Each year you can gift up to $18,000 per recipient (2024) without triggering gift tax. Over time, systematic gifting of real estate interests or cash proceeds can meaningfully reduce your taxable estate — particularly when combined with an FLP or trust structure.
Trusts are the cornerstone of real estate estate planning in California. Here is a reference guide to the most commonly used structures.
The starting point for most California property owners. Avoids probate, maintains privacy, and allows seamless transfer at death. Does not reduce estate taxes.
Holds a life insurance policy outside your taxable estate. The death benefit provides heirs with liquidity to pay estate taxes — without selling real estate to cover the bill.
Transfer your home into a QPRT, retain the right to live in it for a fixed term, and pass it to heirs at a reduced gift tax value. Less commonly used for investment property.
Sell highly appreciated real estate inside a trust tax-free, generate lifetime income, and pass the remainder to charity. A powerful strategy for philanthropically inclined investors.
Transfer appreciating assets into a GRAT while retaining an annuity payment. If the assets grow faster than the IRS hurdle rate, the excess passes to heirs gift-tax-free.
If you have a beneficiary with disabilities, an SNT allows you to leave real estate or its proceeds without disqualifying them from government benefits.
The combination of 1031 exchanges during your lifetime and a stepped-up basis at death is one of the most powerful wealth preservation strategies available to real estate investors.
Throughout your investing lifetime, use 1031 exchanges to sell properties and reinvest into larger, higher-performing multifamily and commercial assets — deferring capital gains taxes at each step. Your full equity compounds in each new asset rather than being reduced by taxes.
Work with your estate attorney to hold your investment properties — including any 1031 replacement properties — inside a revocable living trust. This ensures seamless transfer to your heirs at death while bypassing California probate.
When you pass, your heirs inherit the property at its current fair market value — not your original purchase price or the deferred gain accumulated through decades of 1031 exchanges. The entire deferred capital gain is permanently eliminated. Your heirs can sell the property and owe little to no capital gains tax.
Your real estate investment advisor, estate attorney, and CPA must work together to ensure your property holdings, trust structure, and 1031 exchange strategy are aligned. Mershad works closely with clients' professional teams to ensure real estate decisions support broader estate planning goals.
This is the "swap till you drop" strategy — one of the most effective wealth transfer tools in real estate.
Every investor's situation is different. Here are scenarios that commonly arise among Bay Area property owners — and how estate planning and real estate strategy can address them.
Purchased a Marin County fourplex in 1990 for $280,000. Now worth $2.8M. Wants to sell but dreads the tax bill. Children don't want to manage property.
Owns three single-family rentals, wants to consolidate into one larger multifamily asset and eventually pass to two adult children who want to continue investing.
Portfolio of commercial and multifamily properties valued at $18M. Concerned about estate tax exposure after 2025 exemption sunset. Wants to transfer wealth to children efficiently.
Owns a heavily managed 12-unit apartment building. Wants to stop managing property but doesn't want to pay capital gains on the sale. Wants reliable income in retirement.
Use this reference to understand which strategies may apply to your situation before meeting with your estate attorney and CPA.
| Strategy | Avoids Probate | Reduces Estate Tax | Defers Cap Gains | Eliminates Cap Gains | Best For |
|---|---|---|---|---|---|
| Revocable Living Trust | Yes | No | No | At death (stepped-up basis) | All property owners |
| Irrevocable Trust | Yes | Yes | No | At death | Estates above exemption |
| 1031 Exchange | No | No | Yes | At death (if held) | Active investors upgrading portfolios |
| Charitable Remainder Trust | Yes | Partial | No | Yes (on sale) | Philanthropic investors, low-basis property |
| Family Limited Partnership | Partial | Yes (discounts) | No | At death | Large family portfolios |
| Annual Gift Exclusion | No | Over time | No | No | Systematic wealth transfer |
Answers to the questions Bay Area property owners ask most about real estate and estate planning.
Yes. An LLC protects you from liability during your lifetime but does not determine what happens to your LLC membership interests when you die. Without an estate plan, those interests go through probate — a lengthy, expensive, and public process in California. Your LLC should be owned by a revocable living trust, with a clear operating agreement that addresses succession.
Your property passes through California intestate succession — meaning the state determines who inherits it based on a fixed formula, which may not match your wishes. The property goes through probate, which in California typically takes 18 months or more, is a matter of public record, and can cost 4–7% of the gross estate value in attorney and court fees. A revocable living trust eliminates all of this.
No — a 1031 Exchange must be completed by the taxpayer during their lifetime. However, the strategy of doing repeated 1031 exchanges throughout your lifetime and then passing the final property to your heirs with a stepped-up basis is one of the most effective ways to combine tax deferral with estate planning. This is sometimes called the "swap till you drop" strategy.
Transferring property into a revocable living trust where you are the trustee does not trigger a Proposition 13 reassessment in California. However, certain transfers — including some transfers to irrevocable trusts or to children — may trigger reassessment under Proposition 19 (passed in 2020), which significantly limited parent-to-child transfer exclusions. Work with your estate attorney to structure transfers carefully.
The Tax Cuts and Jobs Act of 2017 doubled the federal estate tax exemption to approximately $13.6M per individual (2024). Without Congressional action, this exemption is scheduled to revert to approximately $7M per individual at the end of 2025. For Bay Area investors with significant real estate portfolios, this could bring many estates into taxable territory. Now is an important time to review your estate plan with your attorney before potential changes take effect.
California's Proposition 19 (effective February 2021) significantly changed the rules for parent-to-child property transfers. Previously, children could inherit a parent's primary residence and investment properties without reassessment. Under Prop 19, only a primary residence can be transferred without reassessment — and only if the child uses it as their primary residence. Investment and rental properties now face reassessment at current market value upon transfer, which can dramatically increase property tax bills for heirs. Proper planning before transfer is essential.
Disclaimer: The information on this page is provided for general educational purposes only and does not constitute legal, tax, or financial advice. Real estate estate planning involves complex legal and tax considerations that vary by individual circumstance. Always consult a qualified estate planning attorney and CPA before making any decisions regarding your property and estate. Mershad Rezayati is a licensed real estate investment advisor — not a licensed attorney or tax professional.
Real Estate Investment Advisor | Multifamily Specialist
As a Real Estate Investment Advisor and Multifamily Specialist, Mershad works alongside your estate attorney and CPA to ensure your investment strategy supports your long-term wealth and legacy goals.
With integrity and a strong work ethic, we deliver a level of service at the forefront of today's real estate market. We offer the services of housing market experts, marketing specialists, and a home-closing real estate team, so your buying and selling experience is in clear view and at ease.