Q. We are retired and have two children older than 21. We have some investment property we do not want to sell now. However, we do not want to continue to be involved in the rental aspect of this property and would like to know what alternatives we have in solving our problem.

A. I only want to address one aspect of your question, but definitely recommend that you discuss the entire situation with your tax adviser for more specific recommendations.

You could consider hiring your children to be the property managers and pay them a fee for their services. This may take some of the property management burden away from you.

One aspect you might want to consider before the end of the year involves giving a portion of the property to each of your children. Under the tax laws, an individual may exclude from the total amount of gifts subject to tax the first $10,000 in value of gifts to each donee during a calendar year.

Thus, both of you can give gifts of $20,000 ($10,000 each) to each of your children this year, and then another $20,000 to each of your children next year. And assuming that Congress does not change these tax laws, this could go on forever on a yearly basis.

And the gift does not have to be in the form of cash. It can also be property or a portion of your property.

Let us assume that you both own a rental property worth $100,000. A total of $20,000 is the equivalent of one-fifth of the property. You can deed to each of your children one-fifth of the property this year and then another one-fifth of the property to each child next year.

At the end of next year, your children will each own two-fifths of the property, and you will only be left with the balance, namely the remaining one-fifth of the interest on the property.

Under this approach, by deeding a portion of the property each year to your children, they obtain the tax benefits, if any, for their portion of the property, and they also can collect their proportionate percentage of the rents.

If you were to sell the property to your children, you would most likely have to pay capital gains tax, which next year is capped at 28 percent of your profit. By transferring a portion of the property in 1990 and then again in 1991, you have effectively transferred ownership to your children without having to pay any income tax on that transfer.

You could, of course, wait until you both die, in which case your children would inherit the property at the stepped-up basis, which is the market value on the date of your death. However, this requires probate proceedings in most cases, which can be complicated, time-consuming and expensive.

In many jurisdictions throughout the United States, if there is a transfer of property between parent and child, the county and the state will impose no transfer or recordation tax. All you would have to pay is the nominal fee for actually recording the deed among the land records in the county where the property is located.

Many people have indicated that they would prefer not to transfer the property, but rather just to give a gift letter to the children indicating that a portion of the property has been transferred to them.

I cannot recommend this approach, since you have not physically conveyed legal title to your children, and the IRS may very well want to challenge this technique. Thus, in my opinion, it makes greater sense to actually physically convey a portion of the property to your children each and every year.

The advantages are simple. Your children will gradually become the owners of your property, and will be able to take whatever tax benefits may be available for their interest in that property.

However, the disadvantages also must be explored. First, by actually deeding property to your children, you both have no more interest in that portion of the conveyed property.

If, down the road, you face the need for cash, you no longer own that portion of the property and thus do not have any control over it.

Second, you are giving up your right to a percentage of the rental income stream. This means that you are going to receive less cash from the rental property than you were getting while you owned the entire property.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036.