Gifting assets now is generally better for reducing estate taxes and witnessing the beneficiary's enjoyment, while leaving assets in a will is better for retaining control, ensuring your own financial security, and providing heirs with a "step-up" in cost basis for tax purposes. Gifting allows for the immediate transfer of appreciation, but assets in a will avoid gift tax reporting and may receive better tax treatment for appreciated property.
Generally, from a tax perspective, it is more advantageous to inherit a home rather than receive it as a gift before the owner's death.
Gift Deed vs Will - Which One Should You Choose?
There are a number of ways gifts made both in your lifetime and after death can reduce the amount of potential inheritance tax.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income.
In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate. It's a progressive tax, just like the federal income tax system. This means that the larger the estate, the higher the tax rate it is subject to.
Give more money away
Lifetime gifting is a straightforward way to begin reducing your IHT bill. By gifting money during lifetime, that would have been part of an inheritance anyway, you reduce the size of your estate so that there is smaller amount subject to IHT on your death.
For smaller gifts, an individual taxpayer can benefit from the annual gift tax exclusion, which allows you to gift up to $19,000 per recipient in 2026 ($38,000 for married couples filing jointly) without having to pay taxes. There is no limit to the number of individuals you can gift this amount to in a year.
A will cannot supersede a deed in transferring title to property. Deeds take precedence as they are legal documents that convey ownership, while wills dictate asset distribution after death.
Some of the risks to consider before making this decision are below:
The most tax-efficient way to leave a home to a child usually involves leaving it in your will for them to inherit, which qualifies for a stepped-up tax basis (reducing capital gains tax if sold) and avoids immediate gift taxes, though trusts (like Revocable Living Trusts for probate avoidance or QPRTs for advanced planning) or Transfer-on-Death (TOD) deeds (where available) offer control and probate avoidance, while outright gifting is generally less tax-efficient due to inherited basis issues. Consulting an estate planning attorney is crucial to choose the best method for your specific situation.
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
While federal law allows individuals to gift up to $19,000 a year (in 2025) without having to pay a gift tax, Medicaid law still treats that gift as a transfer. Any transfer that you make, however innocent, will come under scrutiny.
Step-Up in Basis for Inherited Assets
One tax advantage of leaving assets after death is the step-up in basis. This provision allows heirs to inherit assets at their fair market value at the time of death, effectively resetting the capital gains tax to zero for any appreciation during the decedent's lifetime.
By far the biggest mistake people make when it comes to IHT Planning is simply not taking action. The issue with IHT and Estate Planning is that it is almost always something that 'can wait' until tomorrow (until it can't of course).
However, there is a little-known IHT loophole that does not have a set limit or post-gift survival requirement, known as 'Gifts for the Maintenance of Family'. Any gift that qualifies under this loophole is exempt from IHT. If HMRC decide that the gift was larger than reasonable, the reasonable part is still exempt.
You can avoid capital gains taxes on inherited property by minimizing the time for appreciation. Selling immediately after inheritance typically results in minimal capital gains tax because there's little time for the property to appreciate beyond its stepped-up basis.
Capital gains tax (CGT) is paid either by the deceased estate or by the beneficiary. Never both. But which one applies depends on who sells the asset and when. This distinction matters more than people realise.