Selling the house for $1 is treated as a gift. For gift transaction to be considered - the donee should accept the gift and the donor - your father should file a gift tax return because the value of the gift is above $12,000 (for 2008).
Regardless on that - all gifts within one year before the death are generally included into the estate for estate and inheritance tax purposes.
A tax to be known as the "Indiana estate tax" is imposed upon a resident or nonresident decedent's estate.
In general, estates or beneficiaries of Indiana residents are required to file an inheritance tax return (Form IH-6) if the value of transfers to any beneficiary is greater than the exemption allowed for that beneficiary.
Exemptions are figured based on the relationship between the deceased individual and the beneficiary. These exemptions are as follows:
-- A surviving spouse and charitable organizations are 100 percent exempt from inheritance tax.
-- Parents, children, stepchildren (included if decedent's date of death is after June 30, 2004), grandparents, grandchildren and other lineal ancestors and lineal descendants are eligible for an exemption of $100,000 each.
The inheritance above that limit will be taxable - please see tax rates on the page 3 in instructions - http://www.in.gov/dor/files/ih-6inst.pdf
See also on the last page in instructions:
List all transfers of real or personal property which the decedent made by deed, gift or bargain sale in contemplation of death. Also list all transfers within one year prior to death. Indicate the date of each transfer, the name of each transferee, the type of property interest transferred and the fair market value of the property interest transferred.
Transfers within the year preceding death are presumed to have been made in contemplation of the death of the transferor. However, this presumption is rebuttable. To rebut the presumption, set forth all facts necessary for a proper determination of the taxability of such transfers; you must attach all necessary supporting documents to the back of the return.
Tax Preparer
Taxes, Immigration, Labor Relations