Deeding a rental to adult grandchildren shifts income from a 35% bracket to 12%, but the lost step-up in basis at death usually costs more than all the annual savings combined.
A long-depreciated rental carries accumulated recapture exposure to the grandchild, meaning they inherit both a shrunken basis and a future tax liability.
Once the deed is signed, grandchildren can sell, mortgage, or dispute the property, and their creditors and spouses gain legal access to the asset.
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If you own a rental property and earn solid income, every dollar of rent gets taxed at your highest rate. Your adult grandchildren earn far less, and the same rent on their returns would be taxed at a much lower rate. Split one property among a few of them and the income spreads across several separate low brackets instead of stacking onto one high one. Identical income, taxed at different rates depending on whose return it lands on.