I have left my home in my will to a friend. Can I sell it to him for $1 & set up an estate trust instead of waiting til I die?

Consider using a Living Trust to own your home and other assets. Sit down with an Estate Planning attorney. See .com click on 'Find-A-Lawyer'. Congratulations for being pro-active and thinking ahead.

Gift tax on sale for 1 dollar = tax on a gift of 349,999.99. So yes if you do it that way. If you do gift your house you need an ironclad protection against being evicted from it - so you can give the "remainder" after you keep a life estate - worth a lot less than the home is worth now, because they are not getting the home, now. And you can give it over several years. Best to consult with an estate attorney to set this up for you - an error in how you set up trusts and gifts will probably never be known by you, but to the intended beneficiary later.

The best option is to place the home in a living trust and name your friend as beneficiary. This way you get to live in the home the rest of your life and he receives it at its fair market value, so if he subsequently sells it, he will avoid most of the capital gains tax. You could also put it into an irrevocable defective grantor trust for asset protection and still qualify for the step up in basis. You need to confer with an experienced elder law attorney who can advise you how best to proceed.