<p>Regarding the tax consequences- there are estate taxes, which is paid by the parents or grandparents estate and there are income taxes. The basis in the house affects income taxes.</p>
<p>If that earlier example of a $200k vs $400k basis sold for $1,000,000 later by your son, then he would be liable for the income tax on the $600k-$800k gain, less whatever is allowed, so now $250k-$500k (single/couple) capital gains exclusion, but who knows what it will be in the future!!</p>