Ronald and Amy Goldberger want to make sure the family-photo wall at their country retreat continues for another generation.

Ronald and Amy Goldberger still love the brisk Manhattan pace. But as they glide through their 60s they look forward more than ever to weekends at their house 100 miles away in rural Connecticut. It's not a palace, only 3,500 square feet, with wide-plank floors and cedar-shake siding. They sip summer drinks on the deck and survey their 3.5 acres, with its koi pond and stand of ash and oak. "It rests the soul," Ron says.

The Goldbergers imagine that someday their (prospective) grandchildren will own the house and be sitting on the deck. But their two sons, both in their early 30s, live busy lives on opposite coasts. So the couple is using a "qualified personal residence trust"--a device blessed by Congress and the Internal Revenue Service--to ensure that after they're gone the Connecticut property isn't lost to estate taxes, family squabbles or competing priorities.

The Goldbergers are well-off. But you don't have to be Kennedy-rich to want to preserve a vacation home for the use of heirs. The Kennedys have done a marvelous job keeping their family compound (three adjacent homes, one on the waterfront, assessed at a total of $11 million in 2010 and occupying 6 acres of land in Hyannisport, on the south shore of Cape Cod) intact through three generations. With some intelligent planning you can play this game.

Under current law the federal estate tax is scheduled to spring back to life on Jan. 1 with only $1 million of property per person passing tax free. While the exemption may well go higher--in 2009 it was $3.5 million per person, a figure Democrats have endorsed--the Goldbergers expect to have a taxable estate. Their net worth exceeds $40 million.

Tax strategy for property that will be bequeathed comes down to a tradeoff between income and estate taxes. If you won't have a taxable estate, you might as well leave the house in your name, so your children get the benefit of a step-up in tax basis (to the property's value when you die). If your heirs will be paying death taxes, it might make sense to indulge in techniques (involving trusts or fractional ownership) to lower those taxes. But then your heirs will lose the step-up.

The housing downturn has knocked the value of the Goldbergers' bucolic retreat from $1.5 million in 2006 to perhaps $1 million now. They believe it will begin to appreciate again soon, making this an opportune time to transfer it to the kids. Besides taxes, the Goldbergers aim to minimize hassles, uncertainty and strife for their sons--a goal Ron embraced after watching the bitter family court battles among heirs of a former real estate client, billionaire Jack Kent Cooke. "The beneficiaries of our estate like and respect us, and it's important to keep it that way," he says.

Here's how the Goldbergers' plan works. Ron and Amy each own half the house. Each created a qualified personal resident trust that ultimately benefits their sons and gave it his or her half, taking back the right to occupy the property rent free (paying only upkeep and property taxes) for a decade. For gift tax purposes the $500,000 value of each half is marked down 15%, since each trust, owning only half, has less control over the property. There's a further, larger markdown calculated, based on current interest rates and the age of the gift giver. (The markdown is higher when interest rates are high.)

Why should age matter? Because this markdown reflects two things: The sons won't get the use of the property for a decade, and if either parent dies before the decade is out, his or her ownership share goes back into his or her estate. When all the calculations are done, each Goldberger is deemed to be making a $258,000 gift to the kids, chewing up only a fourth of the $1 million lifetime exemption per person from gift taxes. To the extent that exemption is used, it reduces the estate tax exemption. (But if either partner dies before the end of ten years the $258,000 of exemption is restored to his or her estate along with 50% ownership of the house.)

The combined $516,000 gift value to transfer the house is a fraction of what the house would be worth if it were allowed to continue appreciating and bequeathed as part of the surviving spouse's estate in 20 or 30 years. The estate tax savings here is much more valuable than the step-up attached to a conventional bequest. That's because the top capital gains tax rate (based on next year's laws) is a third of the likely federal and state death tax hit. Besides, the Goldbergers don't want the house sold right away.

Assuming both Goldbergers survive the ten years, full control of the properties transfers to the trusts for their sons, providing another estate tax saving opportunity. That's because the tax rules require the Goldbergers to pay the trust a fair market rent if they wish to keep living in their Connecticut home, even if it's only part-time.

If you're turned off by the prospect of paying rent for your own home, don't be. "In this case that's a good thing," says Avi Z. Kestenbaum, the Goldbergers' Mineola N.Y. tax and estate attorney. Since the parents' rental payments are obligatory, they're not counted as taxable gifts, he explains. Ideally the rent will exceed operating expenses for the property.

In yet another tax-saving twist the trusts were set up as "grantor trusts," meaning the Goldberger parents are in effect paying rent to themselves and no income taxes are due on rent they pay over and above the property's expenses--meaning a further gift-tax-free transfer of wealth to the trust for their sons. The net income accumulating in the sons' trusts can be used to cover expenses on the property after the parents die.

A QPRT can also be used to pass down a primary residence. It's less common for that purpose, if only because the next generation's choice of residence is a function of career path and other things impossible to predict.

The trusts are not obvious winners for people aiming to transfer the most valuable compounds because using them would trigger the immediate payment of gift taxes. Kurt Uzbay, a financial advisor at Morgan Stanley ( MS - news - people ) Smith Barney, brought two clients to Kestenbaum who wanted to transfer vacation properties worth more than $10 million each. Instead of a QPRT, they got a custom structure involving a sale of 90% of the property to grantor trusts in return for a note--with that note paid off with the proceeds of the (somewhat high) rent the parents pay to use the opulent properties. Kestenbaum thinks the structure works, especially if the client has proper appraisals done, but there's always a chance the IRS might challenge it.

Couples who are unsure if their estate will be taxable and don't want the hassle of trust creation might consider giving away fractional shares of the house, using the annual gift tax exclusion. Anyone can give anyone else $13,000 a year without worrying about gift taxes, meaning a couple could give their two adult children $52,000 in value a year. You can still live in the house rent free so long as you're a partial owner.