Is there a way to get around this legally?
Prior to death, sell it to someone in your family?
A business entity like an LLC is perpetual, and you just change out the management of it. This change of management can be written into the articles of incorporation.
So, the parents manage the LLC which owns the property,
then upon death, management passes on to the inheritors.
It’s not that hard to set it up, but I’m sure if too many start doing it, depriving the gov’t of its “due”, they’ll find a way to keep the common folk from doing it.
I do not know all the specifics but by the time my grandparents both passed, they had signed over all properties and accounts to their only child, my mother. I remember hearing that it had to be in her name for seven (I think it was seven) years or the government would still try and take a cut under the argument that the assets were trying to be hidden from them, but after seven years they no longer had a case. It worked out well for our family and my parents have occasionally mentioned that they have learned a lot from the experience and also have a plan to securely pass property to my sister and I down the road. But we aren’t even close to that time yet, thank God. Like you suggested Jayster, the trick is just to stay way out in front of it with a good plan.
I am an attorney in Minnesota. There are some techniques you can undertake to try to pass wealth along, but those techniques only partially offset the pain. A plan for a large estate (greater than $10 million) needs to be implemented well in advance of death in order to take advantage of the planning techniques that are still available. If you are dealing with a very significant estate (not that $10 million isn’t very significant), the owner really needs to hustle, be aggressive, and stay on top of the changes that occur.
In Minnesota, we also have a state Death Tax that kicks in at $1.0 million. That impacts a WHOLE lot of people - many who don’t even realize they’re in that camp. (401k, real estate, life insurance, vehicles, etc — it adds up pretty quickly)
There is still the ability to gift to charity an unlimited amount - if it comes down to the government taking it or a charity receiving it... well, I know which one would end up with mine!
For the record, selling it prior to death would likely trigger crippling capital gains taxes - or gift taxes if the property was sold for less than fair market value. Then you have to figure out a plan for the cash... Passing it to the heirs (along with a stepped-up cost basis) would likely be much more prudent.