There are 2 primary methods of transferring wealth, either gifting during lifetime or leaving an inheritance at death. Individuals may transfer up to $13.99 million (as of 2025) during their lifetime or at death without incurring any federal gift or estate taxes. This is referred to as your lifetime exemption.
Transfer assets into a trust
Certain types of trusts can help avoid estate taxes. An irrevocable trust transfers asset ownership from the original owner to the trust, with assets eventually distributed to the beneficiaries.
Cash is one of the best options to inherit because it is not considered taxable income by the IRA. Cash is also one of the most liquid assets, as you can use it immediately for anything.
In these circumstances, a trust can help set up specific management plans for your assets, provide tax benefits and give your beneficiaries time to adjust to having assets held for them. If you have a straightforward estate and mature adult children, leaving assets outright to them might be appropriate.
One good way is to leave the inheritance in a trust. The trust can be set up with some provisions, such as making distributions over time.
Put the House in a Trust
If you put it in an irrevocable trust that names your children as beneficiaries, it will no longer be a part of your estate when you die, so your estate will not pay any estate taxes on the transfer. The house will also not be subject to Medicaid estate recovery.
One option is to leave your house to someone in your will. A will names the beneficiary for each item of property and transfers ownership after the probate process. A will can be easy to prepare.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
While each situation is unique and other factors might influence the decision, from a tax perspective, inheriting a property is often more beneficial than receiving it as a gift. Considering the overall estate planning strategy and potential non-tax implications is crucial.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Many people who are worried about what will happen to their home when they die ask us whether it would be better to simply add their child's name to their deed. We caution against adding your child to your deed and, in almost all cases, recommend including them in your will instead.
Timelines for transferring property after the owner's death vary by state and can range from a few months to over a year.
Giving Early Can Reduce Estate Taxes
By giving early, you reduce the size of your estate and may avoid probate proceedings. This can save your family taxes and prevent possible court challenges to your bequests.
If you leave money to your children through an irrevocable trust, technically the trust owns the money – not the beneficiary. An irrevocable trust can protect your assets and require the trust executor to follow your exact wishes for the distribution of your assets, even if your child dies or becomes divorced.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
Life insurance
The second way is with life insurance. It allows you to leave an inheritance without your beneficiaries having to pay income tax on the money they receive. So if you buy a policy with a $250,000 death benefit, your heirs will actually get $250,000.
If your parent hasn't executed a durable financial power of attorney and doesn't have a living trust, and they become incapacitated and unable to manage their finances, the only way you can get legal authority to act on their behalf is a conservatorship.