8 Ways to Pass on an Inheritance

For many Americans approaching retirement, the task of passing wealth to the next generation goes far beyond deciding who gets what. It’s about striking a balance between fairness and practicality, safeguarding assets from unnecessary taxes or disputes, and ensuring the legacy reflects both values and financial intentions. A will alone, while important, often leaves gaps, or it may trigger probate, delay access to funds, and even spark conflict among heirs.

That’s why thoughtful inheritance planning looks at more than one path. Depending on your circumstances, you might lean on trusts to maintain control, lifetime gifts to watch loved ones benefit, or beneficiary designations that move assets swiftly and privately.

Some strategies reduce estate taxes, others offer creative ways to leave an inheritance that carries a deeper meaning. Each approach carries trade-offs in complexity, cost, and control, but together they form a toolkit you can tailor to your family’s needs.

With that in mind, let’s explore eight effective (and in some cases innovative) ways to pass on an inheritance, each offering distinct advantages for those who want their wealth to move forward with clarity and purpose.

Below are 8 effective ways to pass on an inheritance to your heirs:

Way #1: Use a living (revocable) trust

One of the most widely used tools in inheritance planning is the revocable living trust. At its core, this structure allows you to transfer assets into the trust while continuing to act as the trustee during your lifetime. You don’t lose control (far from it). You can amend terms, add or remove beneficiaries, even take assets back out if circumstances change. That flexibility is why many people describe it as “a will that works while you’re still alive.”

The real strength of a living trust becomes clear after death. Unlike assets passed solely through a will, those in a trust generally bypass probate – the court process that can delay distribution and expose private family matters to public record. Instead, your beneficiaries receive what you’ve earmarked for them with far less friction, and usually in a shorter timeframe. These are often what families value most, especially when the goal is to alleviate stress during an already challenging time.

What a living trust does not do, however, is magically shrink your taxable estate. Because you retain control while alive, the IRS still considers those assets part of your estate for tax purposes. For that reason, it’s not primarily a tax-saving device but a mechanism for clarity and continuity.

For many households with moderate levels of wealth, a revocable trust often proves to be the best way to pass on inheritance, not because it’s the most flashy option, but because it strikes a balance between ease of administration and ongoing control. It’s straightforward to implement, adaptable to life’s changes, and strong enough to ensure your legacy is transferred with fewer obstacles.

Way #2: Make lifetime gifts (annual and beyond)

Another time-tested approach is to transfer wealth while you are still alive. Making gifts of money or assets during your lifetime not only reduces the size of your taxable estate but also allows you to watch loved ones benefit from your generosity.

Under IRS rules, you can give up to $19,000 per recipient in 2025 without using your lifetime exemption, making this a straightforward and repeatable strategy.

Certain direct payments, such as tuition or medical expenses paid directly to the institution, can also bypass gift tax rules altogether, creating additional opportunities to support family members in meaningful ways.

The main caveat is that over-gifting beyond these limits will erode your lifetime federal gift and estate tax exemption, so the strategy works best when carefully tracked and spread out over time.

Still, for those wondering how to distribute inheritance money in a tax-efficient way, early and consistent lifetime giving remains one of the simplest and most effective paths.

Way #3: Designate beneficiaries and use non-probate transfers

Another straightforward path is to rely on non-probate transfers, assets that pass outside the will or trust, directly by contract or law.

Some of the examples include:

• Naming beneficiaries on retirement accounts (IRAs, 401(k) plans, and life insurance).
• Holding assets with joint tenancy with right of survivorship (JTWROS) or tenancy by the entirety (for spouses).
• Using Transfer-on-Death (TOD) or Payable-on-Death (POD) designations (for bank/account balances) or Transfer-on-Death deeds for real property (available in about half of U.S. states).

These tools are powerful because they override will conflicts, bypass probate, are low-cost, and can expedite settlement.

But there is a catch!

You must coordinate them with your will and trust. If you name a beneficiary inconsistent with your will, confusion or conflict can arise.

Thus, using non-probate vehicles should be part of a holistic plan, not random afterthoughts.

Way #4: Set up an irrevocable trust or specialized trusts

When your estate is large or your goals more refined, such as control, asset protection, or tax optimization, an irrevocable trust (or a suite of trusts) may be one of the creative ways to leave an inheritance you’ll use.

Trust types and strategies include:

• Irrevocable gift trusts: You transfer an asset into a trust; you lose direct control (so it’s out of your estate), yet you define how and when beneficiaries receive distributions.
• Dynasty trusts (generation-skipping trusts): Designed to last for multiple generations, thereby minimizing estate and generation-skipping taxes over time.
• Grantor Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs), and charitable lead or remainder trusts: These are more advanced tools used in wealthy estates.

These trusts often require sophisticated structuring and expert oversight, but when done right, they can deliver substantial tax and legacy advantages that simple wills can’t.

Way #5: Use a Qualified Personal Residence Trust (QPRT) or similar housing transfer

For many families, the home is not just a roof over their heads but the single most significant component of wealth. That makes planning for its transfer especially important. A QPRT offers a structured way to pass a residence to heirs while reducing the gift’s taxable value.

In practice, you deed the property into the trust but retain the right to live there for a set number of years. Once that term expires, the property passes to your beneficiaries. Because you reserved the right to occupy the home, the IRS values the gift at a discount, which means you’ve effectively moved a high-value asset out of your estate at a lower tax cost. This strategy can be particularly attractive when you expect your property to appreciate significantly in the future.

Another tool, available in several states, is the Transfer-on-Death (TOD) deed, which lets you designate a beneficiary to inherit the home directly upon your death. Unlike a QPRT, this does not involve surrendering present rights, and unlike a will, it avoids the probate process entirely. It’s essentially a simple contract recorded with the county that ensures your house goes exactly where you intend, with less legal hassle for your heirs.

Both approaches serve a similar purpose: they protect the home from probate delays and create a clear line of transfer.

But they also demand foresight.

If you change residences, refinance, or your living situation shifts dramatically, the trust or TOD deed may need to be revisited.

A QPRT in particular is a long-term commitment. If you don’t survive the trust term, the property reverts to your taxable estate, undoing the planning. For these reasons, these housing transfer strategies are most effective when carefully coordinated with other aspects of your estate plan and revisited as life circumstances change.

Way #6: Disclaimers and renunciations (“sign over” your inheritance)

Sometimes, a beneficiary may decide they don’t want to keep what has been left to them. In such cases, the law permits specific mechanisms to redirect or refuse an inheritance. The two most common are disclaimers and, in some jurisdictions, deeds of variation.

• Disclaimer of interest: A formal refusal to accept an inheritance. If executed properly, the asset passes as though the beneficiary had predeceased the decedent, moving directly to the next eligible heir.
• Strict requirements: Disclaimers usually must be written, irrevocable, and filed within a specific timeframe. This timeframe is usually nine months from the decedent’s death.
• No partial acceptance: You cannot keep part of the inheritance and disclaim the rest. To be valid, the refusal has to be complete, and you cannot benefit indirectly from what you’ve given up.
• Deed of variation: In some states, heirs can use this tool to redirect what they would have received under a will or intestacy to someone else, offering more flexibility than a disclaimer alone.
• Legal caution: Both methods are tightly regulated, and mistakes can invalidate the transfer. If you are considering signing over your inheritance to someone else, professional legal counsel is essential to ensure it’s done correctly.

Way #7: Use family limited partnerships, LLCs, or business entities

When a significant share of wealth is concentrated in a business or real estate portfolio, passing it on requires more than simply naming heirs in a will. One effective strategy is to wrap these assets into an entity structure, such as a Family Limited Partnership (FLP) or a family LLC, and then gradually transfer ownership interests to the next generation.

This allows you to retain overall control as the managing partner or member, while heirs receive limited interests that give them a stake in profits and appreciation without immediate decision-making authority.

Structuring inheritance this way not only spreads ownership over time but also leverages valuation discounts, since minority interests are typically appraised at less than a proportional share of the whole. That, in turn, can reduce the taxable value of your estate.

Beyond tax benefits, these entities offer a disciplined way to manage governance, succession, and liquidity, creating a smoother path for the family business or property to outlive the founder. The process is more complex than drafting a will. It requires legal formalities, appraisals, and ongoing oversight. Still, for many families, it remains one of the best ways to transfer an inheritance when the legacy is tied up in operating assets rather than cash.

Way #8: Charitable gifts and charitable trusts (your legacy + tax efficiency)

If part of your legacy includes philanthropy, you can use charitable giving strategies that also ease the burden on heirs. These can be surprisingly powerful.

• Charitable Remainder Trusts (CRTs) let you put assets into a trust; beneficiaries (your descendants) get income for a period, and the remainder goes to charity.
• Charitable Lead Trusts (CLTs) work in reverse: the charity receives income for a period, and then the remainder passes to heirs.
• You can also leave specific bequests to charities in your will or set up a life insurance policy owned by a trust for charitable purposes.

These often reduce estate taxes, provide you with tax deductions or benefits, and ensure that part of your heritage fuels causes you care about.

Choosing among these methods: Key considerations

It is possible and often wise to layer several of these eight strategies. But your choices should be driven by three main factors:

1. Your goals for control vs. flexibility.

Do you want your heirs to have immediate access to the assets? Or should distributions be staggered? Do you anticipate changing family dynamics (e.g., remarriage, disability)? Some trusts lock you in; gifts lock you out.

2. Tax and cost trade-offs.

Estate taxes, gift taxes, capital gains, administrative costs, and legal fees all play a role. For example, lifetime gifts reduce taxable estate, but use your exemption early; trusts require ongoing administration.

3. Simplicity vs. complexity vs risk of conflict.

Sometimes the most straightforward plan wins. Overly elaborate arrangements may be more trouble than they’re worth, especially if heirs contest or circumstances change.

Think of your estate as a garden you’re handing off to your children. You can hand them bare soil (simple will), hand them tools and instructions (trusts and guides), or plant perennials in advance (lifetime gifts, entity transfers). The more you structure in advance, the fewer weeds (taxes, disputes) you have later, but you also take on the work yourself now.

Please note: Coordinate beneficiary designations, account titling, and trust/will documents to ensure no inconsistencies derail your plan. That’s a surprisingly common error.

To conclude: Where most plans fail—and how to avoid it

By now, you have eight potent strategies for passing on an inheritance, but implementing is only half the battle. To truly succeed in inheritance planning, you must do three further things:

1. Review and revise periodically.

Laws change (tax limits, gift and estate exemptions, and state rules). Family dynamics shift (births, deaths, marriages, and divorces). What made sense when you were 65 may look foolish at 80. A plan isn’t “set and forget.”

2. Communicate your intentions with your heirs (where appropriate).

A well-planned distribution can still unravel if heirs misunderstand the trust rules or feel blindsided by unexpected events. Good communication (without divulging every detail) can reduce conflict later.

3. Lean on professional advice.

Even the best-laid strategies can misfire if they are poorly drafted or poorly coordinated. A tax lawyer, estate attorney, and financial planner working in concert can spot inconsistencies.

Consider engaging a financial advisor or estate planning attorney to review your current assets and legacy goals. They can help you blend several of these eight strategies into a coherent, legally sound plan, tailored for your family and your dreams. Consing using our advisor directory to match with seasoned advisors who can help you plan your inheritance.