[butters]

On gifts:

Gift tax rules do not prohibit a donor from making gifts in excess of the annual exclusion ($11,000). Gifts in excess of the exclusion are considered taxable, with the following consequences:

1) Donor is required to file a gift tax return for the year
2) Taxable gifts reduce the donor's $1,000,000 gift tax exclusion (lifetime). Gift tax is only paid once the $1,000,000 exclusion is exhausted.
3) Taxable gifts are included on the estate tax return at death of the donor.

On the house:

When your parents die, estate tax is only paid on their estate if it is in excess of the estate tax exclusion ($1.5 million in 2005). If their estate is under that, no worries.

Their house will have appreciated from the time they bought it. If you inherit their house, you will receive a "step-up" in the basis of their house to the current fair market value. So, if they bought their house for $100,000 and it's worth $500,000 when you inherit it, your basis in the house is $500,000 (you get a free $400,000 capital gain). Much better than them selling you the house, IMO.