Minimize inheritance taxes. Avoid passing down these assets.

Added: 2026-06-01

[00:00:00]If you're planning on leaving an inheritance to your kids, you got to be careful. The IRS is waiting in the weeds. If you leave your children the wrong things, a huge chunk of their inheritance goes right to taxes, but leave them the right assets, the government cannot touch even a single dime. So, what actually makes an asset great to leave to your kids? It boils down to just two things.

[00:00:32]One, big tax savings. And two, low administrative burden to your kids. In other words, your kids keep the most money possible.

[00:00:43]And they don't have to jump through a lot of legal hoops or a mountain of paperwork to get the asset. Hi, I'm Martha Chang and on this channel I break down estate planning concepts so your family can avoid probate and protect the wealth that you've built.

[00:01:02]What are the absolute best types of assets to leave to your kids? The jackpot is real estate and regular stocks. Basically, anything that went up in value while you own it when you're alive. Think of your house or your brokerage account. There is a beautiful loophole in the law called a step up in cost basis. Don't let that fancy name scare you. It just means that on the day you die, the IRS hits a giant reset button on the cost basis of your asset.

[00:01:39]Let's say you bought your house 40 years ago for a hundred grand. Today, it's worth half a million dollar. If you sell it today while you're alive, you're going to owe a bunch of taxes. But if your kids inherit it at your death, the government's going to pretend that they bought it at half a million dollars.

[00:02:01]They can sell the property the next day and pay zero capital gains tax. Imagine a lifetime of growth and profit completely wiped out. No tax. But whatever you do, do not sign your house over to your kids while you're still alive.

[00:02:22]That ruins the whole trick. No step up in cost basis if you transfer your house to your kids before you pass away. Next is the king of retirement assets, the Roth IRA. If you have retirement money, this is the one you want to leave behind cuz you already paid the taxes on this money. So, the kids inherit it and withdraw it taxfree or they can let it sit and watch it grow and grow and grow and the IRS gets nothing.

[00:02:56]There was a new law though in 2017 that requires them to drain the Roth IRA within 10 years, but your kids could wait until the absolute last day of the 10th year to withdraw it and pay zero tax on all that growth.

[00:03:14]Next is life insurance and plain bank accounts. I call them quick cash. You do need to go to your bank and fill up a payable on death form and put your kids' names on it. So when you pass away, your kids walk in with a death certificate and the bank hands them the money. No probate, no hassle, clean and easy.

[00:03:39]That's why I call it quick cash. It's a great way to pay for final arrangements, wrapping up the estate.

[00:03:49]Now, what assets are not as fun to inherit to your kids? Traditional IRA and 401ks, those accounts have never been taxed.

[00:04:01]So, when your kids withdraw that money out, the IRS treats it as regular income.

[00:04:09]If I'm lucky enough to leave to my 80s, 90s, my kids are going to be in their late 50s, their peak earning years, any withdrawals will stack up on top of their peak earning years income and may push them into very high tax brackets.

[00:04:28]Another bad asset to leave to your kids, time shares. Time shares come with legal binding rules and mandatory fees that keep increasing every year and your kids can't just abandon them or disclaim the time share to escape these obligations.

[00:04:47]Otherwise, the time share company will go after the estate. Do you have rental property out of state? Understand that your kids will have to go through probate at each state that you have a property. That's going to double triple the stress, fees, and cost of probate.

[00:05:06]Okay, now let's talk about the items that don't just bring tax bills. They trigger full-blown family feuds. Do not leave your house to own together 50/50.

[00:05:19]It sounds fair, but it's a total disaster. One kid will want to sell it for cash, another will want to keep it as an Airbnb, and the third wants to move in. Legally, they all three have to agree on everything. The moment they don't, they're headed for a brutal, expensive court battle that can fracture the family. So, keep it simple. Tell your executive, your trustee to sell the house and split the cash or give the house to one kid and the life insurance money to the other two. And finally, watch out for the stuff, your old furniture, jewelry, old family heirlooms. Your executive is already going to be so exhausted cleaning up the house. But the real nightmare starts when two kids fight over mom's wedding ring or dad's gold watch. Don't leave them guessing. Write up a separate list.

[00:06:22]It's called a personal property memorandum and attach it to your will or trust in it. Be very clear who gets what. Or better yet, just hand them all those items. give away all these items to them and watch them smile and enjoy these items while you're still alive.

[00:06:40]Whatever portfolio of assets you choose to leave to your kids, though, your first priority is to make sure that they will bypass probate. You will never go through probate, but you want to make sure that they don't have to go through probate on your estate on your behalf.

[00:07:00]For most families, that means creating a revocable living trust. If you're new to revocable living trusts, I will be hosting a free webinar where I'll be walking you through the entire process.

[00:07:14]I'll put a link to the webinar in the description below. plain English, practical stepbystep guidance, and you'll learn about modern options of creating revocable living trusts without paying the high fees, thousands of dollars that you have been assuming you'd have to pay.