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“I’m 80 with $1 million — How Do I Keep My Son from Getting Hit with Inheritance Tax?”

You’ve worked hard your whole life, saved wisely, and now you want to make sure your son doesn’t get stuck with a tax mess when you’re gone. Inheritance tax is a topic that comes up a lot, especially for folks in their late 70s and 80s who’ve built up a decent nest egg. But here’s the thing — there’s no simple fix like “just put his name on the account.” The details matter, and many people get tripped up by the fine print.

Federal Estate Tax: The Good News

First off, most Americans won’t pay any federal inheritance or estate tax. The federal exemption for 2024 is a whopping $13.61 million per person. So, if your estate — meaning everything you own, including that $1 million — is under that, your son won’t owe federal estate taxes. Sounds easy, right? Well… not always.

The State Tax Surprise

Here’s where things can get tricky: what state you live in makes a big difference. Some states have their own inheritance or estate taxes, and their exemption limits are often much lower than the federal amount. For example:

• Maryland and Nebraska have inheritance taxes.
• Massachusetts and Oregon have estate tax exemptions under $2 million.

So if you’re in Nebraska and your son inherits directly, he might face a tax bill — even if the IRS isn’t involved. I’ve seen families caught off guard because they assumed federal rules were the whole story. If you live in a state without estate or inheritance taxes, lucky you! But keep in mind, these laws can change, so it’s worth checking in occasionally.

Gifting: A Handy Tool, But Not Always the Best Move

Lots of people ask, “Why not just give the money away now?” It sounds simple and appealing. The IRS lets you gift up to $18,000 per person per year (in 2024) without triggering gift tax paperwork. Over time, this can chip away at your taxable estate.

But here’s the catch: if you gift something that’s appreciated a lot — like stocks or property — your son inherits your original purchase price (called “cost basis”), not the current market value. That could mean a hefty capital gains tax bill down the road if he sells. Plus, keeping track of the cost basis for older assets can be a real headache.

Also, if you give more than the annual $18,000 limit, you’ll need to file IRS Form 709. It’s not complicated, but it’s definitely something you’ll want to stay on top of.

Trusts: Powerful but Not Always Necessary

Trusts often get thrown around as the “magic solution.” And while they have their perks — like avoiding probate and keeping things private — they don’t automatically save on estate taxes. A revocable living trust lets you keep control while simplifying the transfer process, but it doesn’t reduce taxes.

Irrevocable trusts can remove assets from your estate for tax purposes, but you lose control over those assets. Plus, trusts cost money to set up and maintain.

In my experience, many families think, “Let’s just put everything in a trust,” but it’s not always the right move. If your estate is below the federal and state tax thresholds, a trust might be more hassle than it’s worth. However, trusts can be great if you want to control how your son receives the assets — say, if he’s not great with money — or if you want to make charitable gifts.

Don’t Forget About Beneficiary Designations

Here’s an easy win: retirement accounts (like IRAs and 401(k)s) and life insurance policies pass straight to whoever you name as the beneficiary. These usually skip probate, which saves time and headaches.

Just make sure those forms are up to date. Life changes — divorce, remarriage, even the passing of someone — and if you don’t update beneficiaries, the wrong person could end up with the money. I’ve seen this happen more times than I care to count.

Step-Up in Basis: The Quiet Tax Saver

One of the biggest advantages of inheriting assets like stocks or real estate is the “step-up in basis.” Basically, the cost basis resets to the market value on the day you pass away. So if you bought Apple stock decades ago for $10 per share, and it’s worth $180 today, your son can sell it without paying capital gains on that huge increase.

But this doesn’t apply to everything. Retirement accounts are taxed as ordinary income when withdrawn, and if you live in a community property state with assets titled only to one spouse, things can get a bit more complicated.

Common Pitfalls to Watch For

• State Taxes: Even if you’re under the federal exemption, state estate or inheritance taxes can still hit if your state has a low threshold.
• Gifting Appreciated Assets: Giving away property that’s gone up in value can saddle your son with capital gains taxes later on.

What Actually Works

Here’s what I’d recommend based on what I’ve seen work best:

• Know your state’s rules. It’s worth a quick call to an estate attorney to get the facts straight.
• Keep beneficiary designations current. Make sure your son is named where he should be, and keep copies.
• Use trusts thoughtfully. Only if your estate is large or you have specific wishes.
• Be careful gifting appreciated assets. Sometimes, it’s smarter to let your son inherit and get that step-up in basis.
• Keep good records. If you do make gifts, document everything carefully — especially cost basis.

Getting Help Isn’t a Waste

Many people hesitate to spend money on lawyers or accountants, but a $500 consult can save you tens of thousands in the long run. I’ve seen too many DIY plans fall apart in probate court because of overlooked details. Estate law changes, and what worked for your neighbor might not work for you.

Wrapping It Up

If your estate is under $1 million, and you live in a state with no estate or inheritance tax, your son is likely in the clear tax-wise. Just keep those beneficiary forms updated, avoid gifting appreciated assets unless it really makes sense, and think about a trust only if you have special needs or want to skip probate.

But if you’re in a state with low estate tax limits, or your assets are more complex (multiple properties, business interests), it’s time to get some professional advice.

Bottom line? Getting your financial ducks in a row isn’t just about the numbers. It’s about avoiding surprises, making sure your wishes are honored, and keeping the taxman off your son’s back. A little planning now goes a long way toward peace of mind later.

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